The manager of BlackRock’s £287m UK Income fund said his team recently decided to cut a large portion of its exposure to the financial sector, prompted by the unexpected Brexit vote.
Before the referendum on the 23 June, the fund was overweight financials, but David Goldman, who manages the fund alongside Mark Wharrier and Adam Avigdori, said it is now underweight in this sector.
According to the fund group’s latest factsheet, dated 30 June, it now holds just 16 per cent in financials, down from the 25 per cent recorded by FE at the end of May.
Although Mr Goldman admitted he was surprised by the outcome of the referendum, his team had a plan in place in the event of a ‘leave’ vote, which involved a significant reduction in financial stocks.
Since last summer, banks have seen their share price decline around the world, and Mr Goldman admitted life has got tougher for the UK banking sector in the wake of Brexit.
The move meant British American Tobacco has overtaken Lloyds bank as the fund’s largest holding, with the managers almost halving its Lloyds exposure to 3.3 per cent from the 6 per cent reported on 31 May.
“In a world where interest rates are not going to go back up any time soon, that return to a normalised world has been delayed,” he said, adding there are now a lot of question marks over the ‘passporting’ framework.
But he stood by the decision to invest in Lloyds, pointing out that – while the bank did get itself into difficulties during the financial crisis – it has undergone a “self-healing” process over the past few years, becoming more resilient and starting to pay a dividend.
Mr Goldman said he has switched its financial holdings to the telecoms space instead, which currently has pricing power, adding this is “crucial” in a low inflation low interest rate world.
BlackRock’s UK Income fund has around 80 per cent invested in the FTSE 100, with the remaining 20 per cent in mid-cap companies. It also has a 20 per cent cap on investing in overseas companies, of which it uses less than 7 per cent.
The UK market is not the UK economy. David GoldmanMr Goldman said, while the UK market is going through “maximum pain” in terms of uncertainty, this does not mean UK companies are a no-go when it comes to investment.
“The UK market is not the UK economy,” he said, pointing out more than 70 per cent of the UK-listed companies revenues comes from outside the UK.
“There are plenty of companies which are shareholder friendly and demonstrate good cash-capital discipline, which are the companies we are looking to take advantage of,” stated Mr Goldman, who was officially named as co-manager last July.
“The road to normalisation is a long and difficult one” he said, adding his strategy revolves around finding companies which can weather the storm in order to ensure the portfolio is resilient.
Over the past three years, the UK Income fund has returned nearly 25 per cent, outperforming the IA UK Equity Income sector, which has delivered 18.5 per cent, FE figures showed.
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katherine.denham@ft.com
