The co-managers of Liontrust’s £531m Macro Equity Income fund claim they are witnessing the starkest polarisation in performance between different industries since 2008.
Co-manager Stephen Bailey stressed that while positive opportunities existed, the continued woes in sectors such as energy had created a clear disparity between the market’s winners and losers.
“The market hasn’t been this polarised since the financial crisis,” he said. “Mining and oil have underperformed in terms of valuations, [meaning] value destruction.
“Supermarkets has been another area of huge disappointment, as well as utilities.”
So far 2016 has provided little relief for the energy sector in particular, with the price of a barrel of Brent crude oil falling below $30 in January, before recovering slightly.
Companies in this space have been especially hard hit, with shares in Anglo American and BHP Billiton down by 70.4 and 53.5 per cent respectively over a year, as of February 8.
This has led to concerns from the managers that companies in the sector may struggle to cover dividends, even by selling off assets. They currently hold Royal Dutch Shell and Total but are otherwise significantly underweight oil and gas.
Mr Bailey said: “It will be hard to satisfy dividend needs if you can’t dispose of assets at the right price.”
This made it “easy to identify areas of concern” for investors, he added, but “that doesn’t mean to say there aren’t positive opportunities in the market”.
Mr Bailey and his co-manager Jan Luthman, who also work on the £69m Liontrust Macro UK Growth fund, do favour sectors such as healthcare, which they believe could benefit from an improving political environment.
The UK equity income vehicle holds several large companies with exposure to international markets.
Mr Luthman noted that political attitudes to the sector look benevolent, despite the stir last year when US presidential hopeful Hillary Clinton complained of “drug companies charging excessive prices”.
“We are finding significant appeal in the pharmaceutical sector,” he said. “As drugs are moved to approval stage, we could see credible prospects for earnings growth.
“We also see a positive political environment. We are aware concerns have been expressed in the US election over pricing, but we think there’s better understanding about the link between natural health and economic health.”
The pair also expect a boost to growth for telecommunications names such as Vodafone as big capital expenditure programmes wind down.
As of December 31, the Macro Equity Income portfolio’s top weightings were 35.3 per cent in financials, 18.4 per cent in healthcare and 17.7 per cent in telecommunications.
According to FE Analytics, the fund returned 25.4 per cent over three years compared with 24.9 per cent from its peer group, the Investment Association UK Equity Income sector.