Stephen Bailey, manager of Liontrust Macro Equity Income, talks to Rebecca Jones about the stocks he has been buying, holding and selling in his top-down fund.
Buy: BT (LON: BT.A)
Stephen Bailey's buy, BT Group, is also his largest holding - it currently accounts for 5.4 per cent of his portfolio. Having bought and sold the stock in the past, Bailey bought firmly back into it after BT made a surprise purchase of television rights from Sky in 2012, which he says created a 'value opportunity', as the share price dipped on concern over the move.
With BT shares currently trading at close to 400p, Bailey has already doubled his original 200p a share investment. However, he believes there is plenty more upside potential and has recently increased his holding.
He claims BT's 'quad play' offering - which consists of fixed telephone line, mobile, television and broadband services - is particularly attractive, as it offers the opportunity to cross-sell to a growing customer base.
Moreover, Bailey believes the firm's acquisition of mobile operator EE should also prove a significant boon: 'The acquisition of EE makes a lot of strategic sense.
Bailey has faith in BT's management. He says it has been able to cut costs successfully while nurturing the 'top line', which is starting to show signs of strong growth again.
He expects BT, currently priced as an 'expensive value' stock at 17 times earnings, to re-rate as a growth stock in the near future.
Hold: Assura Group (LON:AGR)
Bailey bought into UK-based real estate investment trust (Reit) Assura Group just over 18 months ago, and remains a strong proponent of its mandate.
The firm, established in 2003, acquires, develops and runs a portfolio of medical centres and GP surgeries across the UK, with a view to expanding its reach throughout NHS primary care facilities.
He says: 'Politically, it's an area that has multi-party backing, and that's what we're looking for. We're very much aware of political risk and where the potential pitfalls are. This is an area we're going to see much more enthusiasm for over the next couple of years, and Assura is an industry leader.'
Since Assura re-established itself as a Reit in April 2013, it has raised more than £100 million in share placements, while its share price has risen from the 35p a share at which Bailey bought in, to just over 51p today.
However, this leaves the share price at a 13 per cent premium to Assura's net asset value, which is currently around 47p a share. That's why Bailey is holding rather than buying the stock, despite an attractive 4 per cent dividend yield.
He says: 'We're happy to back it for the longer term and it's managed very well - manager Graham Roberts is formerly of British Land, so he knows what he's doing. If we saw the stock coming back sub-50p, we would be an active buyer.'
Sell: BHP Billiton (LON: BLT)
Bailey sold FTSE 100 miner BHP Billiton last summer when, he says, he began to doubt the ability of the big mining firms to live up to their dividend promises.
Although a number of firms, including BHP, had made progress with their well-publicised cost-cutting programmes, Bailey saw the declining price of major minerals as a warning sign.
'In a supposed global recovery it is somewhat concerning when you see the price of copper and iron ore constantly falling. We just started to wonder whether perhaps we would end up in a situation where the companies were unable to fulfil their dividend promises, despite cutting their bottom lines,' he says.
Having sold at 1,850p a share in June, it seems Bailey chose his moment well, as a free-falling oil price sent BHP's shares as low as 1,276p in December. Over the long term, however, he says he remains positive on the big miners and would not rule out buying back in at the right time.
'We're very keen on both BHP and Rio Tinto for the longer term, as most of their operations and assets are in politically stable areas of the world and therefore deserve a premium rating compared with assets from certain parts of Africa or the former Soviet Union.
'For the moment though, the jury is out, and the rates of dividend growth people have been expecting might disappoint,' Bailey says.
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