Fund manager’s view on the UK – why HL Select holds these 3 shares

Tomorrow the nation elects a new parliament. Polls suggest the next government will look very different to the last. But as an investor, this shouldn’t cause too much concern.

The two major parties have pledged to leave the main tax rates unchanged.

However, in any case, the UK has one of the most open economies in the world and our stock market reflects this. Much of the income of UK-listed companies comes from overseas.

The UK stock market’s relatively undervalued currently, meaning stocks with substantial overseas revenues could present a compelling growth opportunity.

With that in mind, here’ are three UK shares that we hold in one or more of our HL Select funds. Each one is a global leader with a domestic base.

Investing in funds isn’t right for everyone. You should only invest if the fund’s objectives are aligned with your own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

This article isn’t personal advice, and these three shares aren’t a recommendation to invest. Investments fall as well as rise in value, so you could get back less than you put in. If you’re not sure whether an investment is right for you, seek advice. Past performance isn’t a guide to the future.

AstraZeneca

AstraZeneca is one of the UK’s largest companies and in my view, one of its best.

Once facing a hostile bid from Pfizer and a daunting patent cliff, AstraZeneca now has one of the strongest product portfolios in the industry and has grown substantially in the process.

Its revenues have increased by almost 100% in the last decade alone and its share price has more than doubled in that time.

Oncology’s where AstraZeneca has made up the most ground, with several major new products covering lung, breast and other cancers, each generating several billion dollars of sales.

Along the way, the group’s diversified with the acquisition of Alexion, a specialist in rare diseases.

At a recent investor event, AstraZeneca set out plans to launch 20 new medicines by 2030, driving sales to as much as $80bn per annum.

These are stretching targets, as clinical trials can often confound expectations, dashing years of R&D (research and development) efforts and hundreds of millions, if not billions, of development costs.

But AstraZeneca has a lot in the pipeline, so a few failures along the way shouldn’t be too damaging.

An ageing population is something to be celebrated, but inevitably brings with it greater incidences of cancers and cardiovascular and metabolic disorders. AstraZeneca is well placed to benefit.

AstraZeneca is a holding in the HL Select UK Growth and HL Select UK Income funds.

Experian

Experian plc is one of our largest positions in the Select UK funds because it’s a key player in the markets for commercial data.

With roots back in the world of credit management for the mail order industry, Experian’s now a US-focused business providing financial service operators, marketers, governments, and others with critical data.

It’s a business information provider, with activities ranging from core provision of credit analysis to lenders, through to marketing analytics and credit reports for individuals. The use-cases for Experian’s huge database are likely to continue rising in the digital economy.

Selling data doesn’t require big capital investment, so Experian’s growth has been very cash generative, something the HL Select team look for.

Its exposure to the US gives it access to the world’s largest economy. And an earlier investment into a Brazilian data business has allowed them to build one of the strongest positions in Latin America of the UK businesses that we follow.

Experian is a holding in the HL Select UK Growth and HL Select UK Income funds.

Games Workshop

While AstraZeneca and Experian’s activities touch countless citizens around the world, Games Workshop is more of a niche operator. But while it makes miniatures, its business is by no means small.

Games Workshop is a FTSE 250 company, earning around £200m of profits a year.

Itcreated Warhammer to be a hobby that would allow players to explore a fantasy world, populating it with ever-evolving armies of miniature figures, from Space Marines to Wyches. The hobby can engage the player for years and the amount that can be spent is more than unsuspecting parents realise.

Around three quarters of sales are earned outside of the UK. The group does need to invest in manufacturing capacity, but its control of the rules of the Warhammer world means only Games Workshop can supply the authentic components of the game.

The group’s margins are approaching 40% and cash generation is quite exceptional, with the group earning positive free cash flow every year for well over a decade.

The group sells via its own stores and to other hobby outlets around the world, as well as online. The number of towns and cities that could support a store is likely far greater than the current store base of around 400.

Plus, a deal struck with Amazon Studios could see Warhammer appearing on screens globally, creating more potential significant revenue streams.

Games Workshop is a holding in the HL Select UK Growth and HL Select UK Income funds.

HL Select Funds

Steve Clayton is Head of Equity Funds at HL and leads the HL Select fund team.

HL Select funds HL Select is a group of three funds focused on a small number of shares with long-term growth potential.

The HL Select funds are run by our sister company Hargreaves Lansdown Fund Managers Ltd.

The funds can fall as well as rise in value so you could get back less than you invest, especially over the short term. Information provided about individual companies is the view of managers of the fund. It is not a personal recommendation to invest. If you are at all unsure of an investment’s suitability for you please seek personal advice.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.