Get with the strength

SUSAN HELY

Strong companies with robust balance sheets, healthy cash flow generation and proven capital allocation strategies will be the standout performers for investors, according to Mark Burgess, chief investment officer at global funds manager Threadneedle.

Burgess likes: companies that sell into thriving emerging markets, such as European carmaker VW; secular businesses, such as providers of cost-effective healthcare services to ageing populations – there’s Davita of the US or Fresenius Medical in Europe; companies with superior products or intellectual property that should cushion them from the economic cycle, such as Apple.

Burgess says that often the strong companies are large-cap and high-yielding, providing investors with a higher yield than bonds. He says there will be bumps in the road as stockmarkets react to the latest policy initiatives and developments.

“At a micro level, we expect the strong to continue to get stronger and M&A activity will remain an important driver in a number of markets as companies put their excess cash to work.

“Many of these quality companies are inexpensively valued, affording them significant scope to outperform. Examples we currently hold include Nestlé. We think it has an exceptionally strong balance sheet, a high yield and category-leading products in a relatively defensive sector, with good exposure to [emerging markets] growth.

“In terms of markets we particularly like, the US offers an attractive mix of quality management, high free cashflow generation and defensive growth. The country is also benefiting from growing independence in energy due to the development of shale gas.”

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