To deliver a solid return to investors in 2020, Britain’s fund managers were forced to find the best UK shares to profit from the ‘stay at home’ theme.
In most cases, this required searching for companies that were well-positioned to navigate – and even profit from – widespread lockdown restrictions. Think Ocado, ASOS and Bohoo.
For the most part, these turned out to be e-commerce and tech stocks. After all, they were able to capitalise on the sky-rocketing use of online retail.
Nevertheless, lockdown restrictions will ease over the coming months and the vaccination rollout is well under way. With that in mind, I’ve been tracking what the top fund managers doing to position themselves for the post-Covid re-opening. I’m hoping to pick up some ideas for my own portfolio.
Increased appeal of post-pandemic recovery plays
With the government-imposed lockdown restrictions being relaxed, attention has shifted away from volatile tech stocks and towards lucrative cyclical recovery plays.
In a recent podcast, manager of the Invesco Perpetual UK Smaller Companies (LSE: IPU) investment trust, Jonathan Brown, outlined how he was increasing his exposure to cyclical shares in light of vaccine developments.
Brown has been purchasing pub shares Mitchells & Butlers and Fuller Smith & Turner, as well as snapping up The Gym Group.
Even with the share price rebounds of many cyclical stocks, it’s clear that fund managers think there’s plenty of value still out there.
However, there are many tangible risks ahead for cyclical stocks, including the potential for future lockdowns. Furthermore, a dent in the supply of vaccines would certainly prolong and disrupt the process of opening up.
Don’t rule out the lockdown winners
Therefore, in spite of the increased appeal of post-pandemic recovery plays, it would be unwise for me to rule out last year’s star performers.
For example, AXA Investment manager, George Luckcraft, highlights that despite the rollout of the vaccination programme, the working from home trend looks set to continue throughout 2021.
Many high-profile companies have already announced that working from home is here to stay. What’s more, the concept appears to have greatly increased in popularity among workers over the period of the pandemic.
As such, Luckcraft is hedging his bets that households will continue the spend more money on home improvements.
This presents an opportunity for DIY and home furnishing companies, many of which Luckcraft believes remain undervalued.
As a result, the AXA Framlington Monthly Income fund continues to throw its weight behind retailers such as DFS Furniture. In addition, companies such as ScS and Topps Tiles are also holdings within the fund.
However, household finances have taken a big hit from the pandemic. So I think there’s every possibility that home improvements might not be a priority as the economy opens up.
Staying in it for the long term
Either way, fund managers standing by their long-term buy-and-hold strategies remain well-positioned to have another successful year.
After all, ignoring short-term volatility is key if I plan to realise a serious return in the long run.
With that in mind, I’m keeping my eye on a mixture of both cyclical plays and last year’s winners in order to determine the best UK shares to buy for my portfolio.