Kames Capital’s Income duo: Six UK stocks we are adding to on sterling weakness

Kames Capital’s UK Equity Income fund has added to a number of companies listed on the FTSE 100 in the wake of the Brexit vote, with their internationally-focused businesses likely to benefit from falls in sterling.
Duo Douglas Scott and Iain Wells, managers of the £34m fund, said the steep decline for sterling versus the US dollar – which has fallen more than 10%^[1] since the Brexit vote – made such businesses attractive versus domestically-orientated names.
“Funds were used to add to existing holdings in Compass Group, AstraZeneca, British American Tobacco, BP and British Aerospace,” the duo said. “We also established a new position in Unilever.”
While adding to such names, the fund has cut its exposure to UK-centric firms, selling retailer Kingfisher and recruiter SThree.
“The net impact of these moves was to reduce exposure to the domestic UK market and increase exposure to firms likely to benefit from the weakness of sterling,” the managers said.
The changes come after the UK market saw a clear split emerge post-Brexit, with some domestic financials falling as much as 20% following the vote to leave, while dollar earners saw big price jumps.
The duo said as well as adding to stocks benefiting from sterling’s decline, the focus was on companies which could surprise on dividends, and grow revenues regardless of the macro picture.
“In this environment our overarching strategy remains one of looking for those companies that have the potential to surprise on dividend distribution, and the ability to drive their growth without the help of a supportive macro backdrop,” they said.
“From a tactical perspective, the indiscriminate re-rating of overseas exposed companies and accompanying sell-off in UK domestics and financials in response to the referendum should create a range of interesting anomalies and opportunities to accumulate positions for the longer term.”
[1] Sterling has fallen from $1.49 versus the US dollar on 23/06/16 to close at $1.32 on 20/07/16, a fall of 11%.