Stock picking key as UK pulls out of recession, says Fidelity

While the UK economy grew less than forecast in the fourth quarter, the UK stock market still offers great opportunities for stock pickers, says Fidelity International.

Tom Ewing, manager of the UK Growth Fund, says: "We are now in a position where almost every leading indicator is positive, and companies we meet are manifestly more optimistic about the next 12 months. This is starting to impact commercial decisions. The market has continued its inexorable march upwards.

"There is less daily volatility and it feels like a great environment for stock picking. The environment is not free from risk; extraordinary government intervention is difficult to predict and consumers in the west remain highly leveraged. However, some companies have strong balance sheets and have weathered the crisis well.

"Now is a time of opportunity. Reckitt Benckiser, BG Group, and Mothercare are examples of relative winners from the turmoil. They are on the front foot and can look forward to a stronger environment in which to grow."

Aruna Karunathilake, manager of the Fidelity UK Aggressive Fund, says: "Leading indicators of economic activity continued to improve through last quarter and commentary from companies also indicates we are seeing signs of improvement in the real economy. Low interest rates and loose monetary policy provide a positive backdrop for all asset markets.

"Equities continue to look good value against other asset classes. The phased withdrawal of monetary stimulus beginning with the end of quantitative easing is the main risk to the recovery in asset markets and the economy."

While the UK GDP figure was less than expected, many UK-listed companies are well diversified and well placed to benefit from improvements in the global economy.

Karunathilake has been reducing exposure to UK focused consumer stocks and has instead focused on stocks that are tied to international markets.

He says: "UK focused consumer stocks have performed well on the back of improving sentiment on the outlook for the consumer as a result of lower interest rates.

"However, I am concerned about the outlook for spending in the face of potentially higher taxation and unemployment in 2010 and beyond and have cut back on holdings in this area. I have added to holdings of international consumer franchises such as Burberry who operate in markets with a stronger consumer outlook."