Toscafund's Hughes backs housebuilders

Date: Monday, January 11, 2010
Author: Laurence Fletcher, Reuters

Hedge fund firm Toscafund's high-profile founder Martin Hughes is backing online gaming, housebuilders and resource stocks for 2010 but is wary of commercial property and has moved out of retailers.

Hughes, whose funds were hard hit during the market fall of 2008, saw the firm's Mid Cap and Opportunity funds return more than 100 percent last year, helped by a bet that the price of new houses in the UK would not collapse, and says he remains positive on this sector.

"Looking forward, we expect good gains in 2010," said Hughes, who was ranked joint 322nd in last year's Sunday Times Rich List with an estimated wealth of 175 million pounds, in a rare interview.

"We feel we're going to make a lot of money out of housebuilders as they're undervalued. Media hysteria has house prices falling this year, but they're going up."

His top bets in his Mid Cap fund last year were Redrow (RDW.L) and Taylor Wimpey (TW.L), which more than doubled and rose fivefold respectively from trough to peak.

He also favours resource stocks, particularly those involved in oil in Africa, gold miners and basic resources.

"Resource stocks are attractive... There may or may not be a bubble in gold (the metal), but if you go back three years gold shares have hardly moved. We expect very favourable announcements."

He said he recently bought into Fijian gold company Vatukoula (VGMS.L).

"Based on management expectations it's on a PER (price/earnings ratio) of just over 1.5 (times), so we expect it to rise 10-fold over the next 12 months."

He also favours online gaming stocks but has switched out of consumer discretionary.

"We're happy with the online gaming market, which has seen important regulation, particularly in the U.S.

"We did well out of consumer discretionary in 2009 and we won't be investing there now. We're avoiding stores and shops and commercial property."