Brexit has had a significant effect on UK equities but there will be areas of volatility in the near future, the head of UK equities at Neptune has claimed.
Speaking to Investment Adviser’s Julia Faurschou, Mark Martin said he had prepared the portfolios ahead of the referendum vote to avoid any possible shocks if the UK voted to leave the European Union.
He said: “It has definitely been a rough year for UK equities and particularly for the mid-cap index so far. We were surprised by the Brexit vote but we were not unprepared for it.
“We had positioned both funds in preparation for a possible leave vote in advance of the referendum. We had reduced some of the domestic cyclicals and maintained our long-held zero weight in housebuilders.”
He said the allocation has not changed significantly since the result, adding: “We haven’t needed to make too many changes as we are pretty happy with how we are positioned now.
“On a relative basis we were prepared for this outcome we are underweight UK exposure in the Neptune UK Mid-Cap fund and we have a lot of ex-UK exposure, particularly to dollar revenues through healthcare companies.
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“We have been overweight in the healthcare sector for a long time now and clearly we have seen sterling devalue against the dollar, so our weightings in dollar holdings and ex-UK weightings have really helped.”
That said, the outlook has become far more clouded, he added, for certain areas of the market, such as housebuilders and domestic cyclicals.
Although there has been a lot of stimulus already for housebuilders, such as ultra-low interest rates, help to buy and quantitative easing, which had been good tailwinds for the sector, Mr Martin said he believed this is coming to an end.
He said: “These tailwinds may be turning into headwinds and we suspect for domestic UK cyclicals we think life is going to be tough.”
Mr Martin said there may also be some volatility ahead in the next two years as the UK negotiates its exit from the European Union and put in place trade treaties from the European Union.
For this reason he said it would be important to continue to focus on companies with strong balance sheets and “consistent cash generation” as these sort of companies would stand to perform strongly, regardless of any volatility in the coming months.
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