UK equity managers look overseas amid recession

UK equity managers said they were shifting into companies with overseas earnings and avoiding direct exposure to UK consumers last week, as the UK officially slumped back into recession.

The managers said they were increasingly reliant on the flow of global earnings from many of the biggest companies listed in the UK, as domestic earnings continue to dwindle.

An expected weakening of sterling is also expected to boost companies trading overseas, leading to UK equity managers topping up holdings in global companies such as Unilever, HSBC and Burberry.

Jan Luthman, co-manager of the £224m CF Walker Crips Equity Income fund, argued the UK had “never come out of recession” at all, and was simply “slipping into a long winter of austerity”.

Mr Luthman – who has now joined Liontrust – said he remained positive on large-cap, globally focused UK stocks selling into Asia and the Far East in particular, and has recently topped up holdings in consumer stocks such as Unilever, Reckitt Benckiser, Kimberly Clark and Heinz, which are all expanding into emerging markets.

Julie Dean, manager of

Cazenove Capital Management’s (CM) £349.8m UK Opportunities fund, correctly forecast last summer that the UK could be heading for another recession.

She said last week she was now cutting her weightings in economically sensitive consumer stocks in favour of more defensive companies such as defence giants BAE Systems and Cobham, amid the UK growth drought.

“We have tilted the risk away from the consumer and industrials. At the moment most of the economic data is a bit worse than people had expected. It is not collapsing, but it is not as good as people have come to expect,” the manager said.

“It is also occurring at a time of macroeconomic pressures in the world, and we are not seeing strong earnings upgrades in the latest company results period.”

Richard Black, manager of the £20.6m Legal & General UK Equity Income fund, said: “Domestically focused companies need to be very careful, as they will find it difficult to deliver any profit growth.”

Other managers played down the importance of the UK’s technical recession, with Axa Framlington’s £149.6m Equity Income fund manager George Luckraft saying the 0.2 per cent contraction was “60 per cent estimate”.

The Office for National Statistics is due to publish its revision of its estimated first quarter growth figures on May 24.

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