U.S.-based fund managers eye British homebuilders, banks before Brexit vote

By David Randall

NEW YORK, June 22 (Reuters) - Market volatility heading intoThursday's British vote on whether to remain in the EuropeanUnion is creating opportunities to buy homebuilders, banks andconsumer companies linked to the domestic economy in Britain,contrarian fund managers from several well-known firms say.

Their argument: That domestic companies should hold upbetter than the market expects even if voters elect to leave theEuropean Union, partly because they tend to have strong balancesheets and could weather the costs of a transition.Domestic-focused British companies would also see less of animpact by any declines in the value of the sterling.

"Obviously, the stock market could be worse in theshort-term with a 'leave' vote, but we don't see demand forservices being impacted significantly," said Connor Muldoon, aportfolio manager at Causeway Capital Management, which manages$40 billion in total assets. Muldoon's funds owns banks such asLloyd's Banking Group PLC that are large mortgage lenders andwhich are down for the year to date.

Domestic companies have been the most hurt in the run-up tothe referendum. The FTSE 250 index, made up of companies on theLondon Stock Exchange that tend to be more dependent on domesticspending, is down 2.5 percent in the year to date, while thelarger, more globally focused companies in the FTSE 100 are upslightly for the year.

Vince Montemaggiore, who manages the $5.3 billion FidelityOverseas Fund, said that he remains overweight on companies"with a defensible moat" that focus on the British domesticeconomy, while remaining underweight on Europe as a whole.

Consumer company Reckitt Benckiser Group PLC, theparent of brands ranging from Durex condoms to Lysoldisinfectant spray, was among his top holdings in his Aprilquarterly disclosures, according to Morningstar data.

"I do like the odds but we have to wait as the world figuresout what the future is going to look like in Europe," he said.

Jim Tringas, a portfolio manager at Wells Fargo AssetManagement who co-manages the $226 million Global OpportunitiesFund and the $941 million Special Small Cap Value fund, saidthat he added to Britain-focused real estate stocks over thelast week as the market swooned.

"We've been finding opportunities to buy very strongfranchises that were down significantly because of the macrofactor," he said. (Editing by Linda Stern and Bernadette Baum)