Selective high street bargains

As the woes of UK retail sector continue to make headlines with stores such as Woolworths, Zavvi and Adams going bust, opportunities still exist in selective stocks, according to Hilary Aldridge, co-manager of the F&C UK Growth & Income Fund.

"Rising unemployment, low savings ratio and the strengthening dollar all threaten to hit margins as well as sales," said Aldridge. "However share prices have gone a long way to adjusting for these negatives. Those people who remain in employment in 2009 should actually be better off than they have been for some time as petrol and food prices fall and significant cuts to interest rates feed through into lower mortgage payments."

According to Aldridge the current gloom will encourage more saving but consumers will continue spending money on items they really need. "Retailers of smaller items, such as clothing or the value end of home furnishing retailing, should find life easier than many people think," she commented.

Over the recent past, Aldridge has been adding retailers to both Growth & Income and Special Situations. For instance, at the end of last year she added Next to both portfolios given the stock's attractive valuation and yield. Another stock she likes and describes as a long-term winner is furnishing company Dunelm held in Special Situations for some time.

"We still prefer those companies with solid balance sheets and good cash generation. Over the next 18 months we expect to see strong businesses getting stronger," she concluded.