Fund managers pounce on homeware and hobby stocks

If you believe the most alarming reports, permanent home working will lead to the death of every high street shop in the UK.

Former chief economic adviser at the Confederation of British Industry, Douglas McWilliams, predicted the UK economy would lose £480bn over the next five years if people kept working at home. PwC put the figure at a more restrained, but still alarming, £15.3bn a year.

This is good news for online businesses, such as digital security company Avast (AVST), which entered the FTSE 100 in June.

‘It has been a beneficiary of lockdown,’ says Audrey Ryan, co-manager of the £125m Aegon UK Opportunities fund, which took a position in Avast at the end of last year.

‘As we spend more time on computers and phones, we want to ensure we’re free from cyber-security and data risks.’

Home improvements

Digital companies are not the only ones to benefit from home working. Some bricks and mortar names have also done well for UK equity managers. 

Aegon UK Opportunities took a renewed position in furniture retailer Dunelm (DNLM) in April. The fund had previously sold its holding, but bought it back when the share price fell from a high above £14 to just £6.60 in March. Even as markets recovered in April, Dunelm shares traded at around £8. 

‘We were very mindful that it has bricks and mortar in the UK, it has stores, which clearly would be shocked,’ Ryan says.

‘But we like the business’s multi-channel approach. It now has the right digital platform in place, the right distribution model and we believe it can grow both online sales and click-and-collect.’

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Investing in its online platform has certainly paid off for Dunelm. According to a trading update published in July, online sales increased by 105.6% year-on-year in the second quarter. This has helped drive the company’s share price up 59% between April and mid-September. The stock is the second best performing in the fund’s portfolio since it was bought.

Ryan says sales were helped by pent-up demand from people spending more time in their homes.

‘As I sit in my little study, and spend more time in my kitchen and other parts of the house, I realise how much work is needed,’ she says.

‘Working from home has made people think about how they’d like to improve certain aspects of the living environment, particularly if we’re going to be doing this for longer.’

Hobbies boom

If home working has inspired the inner decorator in some, it has also inspired the inner brigadier in others. Games Workshop (GAW), the company behind tabletop strategy game Warhammer, has long been a top pick for UK equity managers. The £228m Baillie Gifford UK Growth (BGUK) trust invested in the business at the end of 2019 and it has since been the best performer in the portfolio, returning 52.5% by the end of August.

‘One reason why it has been very successful in the last few years is that it really engaged with the community. It has a tremendous, fanatically loyal customer base,’ says Iain McCombie, Citywire AA-rated co-manager of the trust. 

‘Games Workshop kept engaging with customers when they were locked down. When they were able to restart, there was a huge amount of demand and certain products sold out almost immediately,’ he says.

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More generally, McCombie says working from home led people to consider hobbies. Games Workshop sensibly published more beginner’s material to help people get into the game.

‘Painting models might sound old fashioned, but it’s not,’ he says.

‘People like it and in lockdown hobbies like that have been attractive. Who knows what’s going to happen with more home working,’ he says.

With signs of a second coronavirus crisis afoot and the implications this would likely have for continued home working, UK equity managers will doubtless keep their eye out for the retail businesses making the most of online opportunities. 



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