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Tech disruption drives value in autos, says JPM’s Butler

Tech disruption drives value in autos, says JPM’s Butler

Disruptive technology in the auto industry is a long term concern, but it has led to much more value in the sector, according to JPM’s Ian Butler.

A-rated Butler, who currently has 13.5% of the JPM Europe Strategic Value fund invested in the industrials space, said the noise surrounding technical disruption from driverless cars in the sector could actually be beneficial for value investors.

‘There are some headwinds for the sector, but actually, a lot of the incumbent companies are doing a lot already, more than people would actually think. They are protecting themselves in some way to benefit from the changes in the automobiles sector,’ he told Citywire Selector.

Butler highlighted French company, Renault, as a manufacturer doing more behind the scenes in terms of tech evolution.

‘Renault for example, sell the most or have sold the most electric vehicles in the world to date, which surprised me when I first saw that statistic - you might think it’s a Tesla or somebody else but, it’s Renault alongside Nissan.

‘Then there are companies like BMW who are being incredibly innovative, they are launching a number of new initiatives. They have a car sharing platform that they are rolling out across Europe, they are also in agreements with Intel and they are looking into and developing automated cars as well as producing electric vehicles.’

Butler said the fund is overweight in the auto sector and it is one of the best value sectors on offer to investors. 

‘We see a lot of value in the sector, especially with the recent news around Peugeot buying Opel. Some analysts estimate that Peugeot could increase their earnings by about 30%, which shows there is still a lot of value in the sector.

‘It also shows cost cutting measures being done in that sector, can actually be a catalyst to crystallise some of that value.’

Value in banks

Away from autos, Butler has over 40% of the fund allocated to financials. He said the banking sector is still one of the best value sectors. 

Previously, Butler’s co-manager A-rated Michael Barakos, said banks were the main sector for value investors to bet on, a play Butler said is still at the forefront of the fund.

‘We have seen a big improvement on the capital side of the sector, the banks are reporting strong revenues and profits which are better than both the market and investors had been expecting.

‘Valuation was the first catalysts we latched onto and in addition to the valuation, we have also seen an improvement in fundamentals.’

The JPM Europe Strategic Value fund returned 18.20% in euro terms, over the three years to the end of February 2017. This compares with a 13.11% rise by its Citywire-assigned benchmark, the MSCI Europe Value TR EUR, over the same time period.

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