Unloved oils and telecoms favoured by Bankers Investment Trust

News - Banking

Written by Ray Clancy

Wednesday, 10 November 2010 11:17

Companies are continuing to make progress but recovery will remain slow until banking systems begin to lend more, it is claimed.

Unloved sectors such as oils and telecoms offer real long term investment opportunities for growth, according to Alex Crooke, portfolio manager of The Bankers Investment Trust.

He believes that it will be the middle of 2011 before there is a more substantial global recovery but there are plenty of opportunities in the next six months.

‘Companies are continuing to recover, with the private sector making more progress than the public sector. We are starting to see a fall in corporate net debt, while capital expenditure is beginning to rise, for example, with BG’s recent investment in Australia,’ he said.

‘However, banks are still not increasing lending to businesses and the recovery will remain muted until this is resolved. We believe we will see a more substantial global recovery in mid-2011,’ he added.

The Bankers Investment Trust seeks income, aligned with capital growth, and one of his favoured sectors is oil. ‘The BP situation has made it uncertain for many investors in this sector, but demand is recovering. Current market expectations are that western demand for oil will remain flat for the next four years, while demand from emerging markets will grow by about 3% a year,’ Crooke explained.

‘Our belief, however, is that there will be a small pick up in demand for oil from developed countries and a larger increase from emerging markets which is not currently factored into price expectations. We favour oil exploration over major oil companies as they are well placed to deliver growth going forward due to the expertise required for deep water and remote region exploration. As it is a fairly high risk investment, we have taken a portfolio approach across several investments to spread the risk,’ he added.

Crooke also likes telecoms. ‘It is truly an unloved sector at the moment. The recession has hit telecoms companies very hard, but we believe this is camouflaging a positive growth story. The demand for data is growing enormously, driven by the rise in smart phones, to the extent that suppliers are now struggling with network capacity,’ he said.

‘In response, AT&T in the US is creating tiered pricing packages for data, rather than offering one price for unlimited access as is the case in most countries currently. We expect an increasing demand for new data service from customers to drive increasing price, but the market is assuming lower revenues from telecom companies due to the impact of reputation, which we believe is creating a good buying opportunity,’ he explained.

‘The Bankers Investment Trust has had 42 years of consecutive dividend growth and, with reserves of roughly twice the current dividend we fully expect to continue this record. In addition, the Trust has one of the highest yields in the sector and we feel we are in an ideal position to continue to deliver performance,’ added Crooke.