Page 12 - DIY Investor Magazine | Issue 29

HOW CAN INVESTORS ACCESS THE UK’S INDUSTRIAL RECOVERY?
Industrial and construction businesses are seeing activity bounce back after the disruption of 2020, but there are structural factors supporting longer term growth too - by Rory Bateman, Head of Equities and manager of Schroder British Opportunities Trust
The UK has barely begun to edge out of its third Covid-19 lockdown but economic activity in some sectors is already racing ahead. While consumer-facing services businesses still await a return to ‘normal’, the industrial manufacturing and construction parts of the economy are recovering strongly.
We can see signs of this in the CIPS/Markit manufacturing purchasing managers’ index.
The sharp fall from March to April 2020 marks the start of the pandemic in the UK but it’s notable how quickly activity then recovered, with the index clearly above 50 (which separates expansion from contraction) from July onwards.
The latest dip from December to January can be attributed to the current lockdown but a reading of 54.1 (for January 2021) still implies robust activity. By contrast, the equivalent reading for the services sector was below 40 in January. Further
‘THE UK IS HOME TO NUMEROUS SMALLER COMPANIES WHO ARE WELL PLACED TO BENEFIT FROM THESE TRENDS’
It’s not just the lockdown/unlocking cycle that has helped activity rebound; other factors are at play too. Ongoing low interest rates enable borrowing for investment. Further long- term support also comes from government policy, and from the need to repair, maintain and improve the UK’s housing stock and other buildings.
The UK is home to numerous smaller companies who are well placed to benefit from these trends. We can identify several industrial manufacturers and construction businesses who have excellent products, structural growth opportunities, and strong sustainability profiles.
GOVERNMENT INITIATIVES ARE TAILWIND FOR SECTOR
In terms of government policy, longer-term support for industrial manufacturers and construction businesses is present in the form of ambitious house-building targets.
House-building has fallen behind the formation of new households for many years now, leaving the UK with an increasingly severe shortage of homes. The UK government is targeting construction of one million new homes - meaning 300,000 new homes a year by the mid-2020s - but housing completions are well off this pace.
The imperative to provide new homes means the pace
of construction is likely to pick up, providing a tailwind for companies operating in the sector. Most obviously, there will be a requirement for bricks.
evidence of the swift bounce-back can be found in housing starts data.
Housing starts reached 35,710 units in the third quarter of 2020, a sharp jump up from the pandemic-depressed level of 15,930 in the second quarter.
DIY Investor Magazine | Jun 2021 12