There is a recovery under way in the global economy and companies that are serving that recovery are going to produce better than expected profit growth.
Those industrial companies, particularly in the UK, that are exporting to the developing world are going to surprise investors with the strength of their profits. Therefore, I believe the recovery in share prices we have been witnessing in recent months is set to continue.
Valuations are undemanding, yet profit growth is going to exceed expectations and I expect we will see a continuation of the strong upward movement in prices.
The global economy is growing and the developing world is behind much of that growth. The US is expanding at a better rate than some people believed it would and that is because the spend programmes are coming through. As the biggest economy in the world returns to a growth path, it is leading the rest of the world up and UK companies that are exporting into those markets are benefiting.
One of the risks that may slow this recovery is the oil price. Industrials are oil users and if the oil price rises much further than its current level then that will hurt.
It will also hurt the consumer as money will be taken out of our pockets at the petrol pump.
We have partially mitigated that concern by buying some oil stocks in the last quarter, particularly oil exploration companies where the valuations are modest and a higher oil price would be beneficial.
A particular sector theme I am looking at is technology. About 30 per cent of the portfolio is in technology-related companies and some of these are in businesses that are growing very fast.
They are providing answers to problems in the world today and investors may see spectacular profit growth from some of those companies. Technology is something the UK economy does well.
It is important to have a portfolio of companies and not one particular type – lots of different management methods work and there is no clear description of what will work in any given time.
What is important is a management team that can adapt to where it finds itself and has a vision of where it can go.
Those companies can be found in many different areas and will be from industries that are diverse and that diversity is important because it means you have balance in the overall portfolio.
Valuation is important and, after that, it is about believing the management team is strong enough to grow the business over time. When that valuation becomes too demanding, we need to sell it and recycle the money into other opportunities where the valuation is undemanding again.
The opportunities trust comprises a mix . It is an esoteric collection of companies. They are conviction holdings and companies we believe will come through with good results over time.
James Henderson is manager of the Henderson opportunities trust