UK housebuilders are poised for further growth, but those focused on London remain in risky territory, a fund manager has warned.
Smith & Williamson’s Enterprise Fund has increased its exposure to UK housebuilding, despite an investor sell-off in the sector, arguing that stocks are currently undervalued.
Mark Boucher, who co-manages the £126m fund alongside Mark Swain and Rupert Fleming, says that valuations in the UK housebuilding sector do not reflect positive fundamentals underpinning the market, making it one of the most attractive domestic investment opportunities.
He says: “Its relative valuation is the lowest out of all the domestically focused areas of the UK, and since it is also the most geared to UK consumers, it is the cleanest way to play UK domestic growth.’
“As such, we recently added to our housebuilders exposure, with a new position in Persimmon complementing our top 10 holding of Barratt Developments.
He believes Persimmon was oversold prior to its latest set of results, in which it posted more than £1bn of annual pre-tax profit.
Boucher adds: “Recent updates from the business confirmed what we suspected about the housebuilding sector in general; earnings have continued to rise despite investors selling out.”
Co-manager Swain says: “We are still seeing demand for housing despite the fear of Brexit, and build costs have not increased at all. Indeed, they have actually fallen since the sell-off.
“Naturally Brexit remains a worry, but we are optimistic that the current government will not push through a no-deal Brexit, and any deal should see UK-focused equities rally hard.”
“While we remain optimistic for the outlook for the housebuilding sector broadly and are net long housebuilders, we are wary of the players that are geared only to London.”