A professional investor tells us where he’d put his money. This week: Callum Abbot, portfolio manager of the JPMorgan Claverhouse Investment Trust
The UK market is an attractive investment opportunity owing to its extraordinarily cheap valuation. There have been eight mergers or takeovers with a value of more than $1bn in the UK so far this year, compared with just three in 2023. The sheer scale of the dealmaking activity in the UK underpins the valuation opportunity. This is despite Britain’s improving economic prospects, with GDP growth improving and inflation cooling.
Many established British companies are known for paying attractive dividends, trading on high dividend yields and providing a reliable income stream. However, it is also worth considering companies that have the potential to grow their dividend materially over time.
Powering business jets
UK stalwart Rolls-Royce (LSE: RR) is the world’s leading engine supplier in business aviation, powering some of the largest, fastest and longest-range business jets available. With more than 3,300 of these aircraft in service worldwide, all requiring ongoing service and maintenance, the firm is profiting from increased demand for flights post-Covid.
Rolls-Royce’s new management team has turned the firm around, improving cash flow and profit margins. As it continues to negotiate improved after-market contracts, we expect margins and cash flow to keep growing stronger. Rolls-Royce does not yet pay a dividend, but the scale of cash generation expected as the turnaround takes effect could finance a rapidly growing dividend for the remainder of the decade and beyond.
3i Group (LSE: III) is a private-equity business that owns stakes in a diversified portfolio of companies. It targets sectors offering long-term sustainable growth and owns firms with a competitive advantage. It has consistently increased the value of its portfolio at an annual growth rate in the teens for over a decade.
3i’s largest holding is the discount retailer Action (worth 65% of the portfolio). The first store was in the Netherlands, but it now has over 2,600 across Europe. The retailer’s strategy is to focus only on items most frequently purchased in the categories
