Stock-pickers buy into housing boom

A HANDFUL of top fund managers have been building stakes in housebuilders, brushing aside fears of a crash in the UK property market.

Despite a year-long rally for the likes of Taylor Woodrow and Wimpey, fuelled largely by the relentless British house price boom, fans of the sector insist that share prices still look historically cheap compared with the bumper profits that are now rolling in.

Fund manager Ted Scott believes a 'doomsday scenario' for the property market is already factored into the share prices. 'The crash may come,' he says 'but the balance of probablity is against it.'

Scott, who runs two strong-performing funds for ISIS, the Stewardship Income and Growth funds, has heavily-backed Berkeley Group, which focuses on London and the South-East. He also holds Redrow, Bellway, Barratt Developments and Wilson Bowden.

A handful of other funds run by top stock-pickers are backing housebuilders. The Gartmore UK & Irish Smaller Companies fund, run by Gervais Williams, has taken punts on Bellway and Bovis and the Rathbone Special Situations fund, the best performing trust of its type over three years, holds Ben Bailey. Manager Carl Stick bought into the minnow firm more than two years ago. The shares have since leapt from less than £1 to 461 1/2p.

Other strong-performing funds have benefited from the rally in house-builders. According to the most recent fund factsheets supplied to website Trustnet, the Schroder UK Mid-250 fund, run by Andy Brough, holds Bellway, Framlington Smaller Companies fund, run by Roger Whiteoak, backs Redrow and Jupiter Income, run by Tony Nutt, holds Persimmon.

Several companies have delivered robust full-year results in recent weeks. Last week's Budget also provided a filip, with the industry spared nasty surprises on stamp duty or increased VAT.

Shares of housebuilders over one year

A Treasury-commissioned report on housing, written by Kate Barker, a former member of the monetary policy committee, also helped support share prices. She said the number of homes built in the UK each year should ideally rise from 170,000 to 300,000. Experts have long warned that changing demographics is increasing pressure for housing, while the industry says planning red tape prevents them keeping up with the demand.

Barker's report, welcomed in the Budget, aims to end the boom/bust cycle of the market, a change which would also increase the attractiveness of housebuilders as investments. To add to the bullish mood, takeover speculation has begun circling several companies with Crest Nicholson and Westbury cited as the most likely targets.

With the Budget out of the way, Gervais Williams, who heads up Gartmore's small caps team, expects further gains. 'The industry remains among the more fundamentally robust in the UK and this news will allow housebuilders to continue delivering ongoing increases in profitability and dividends,' he says.