Investment managers are polarised when it comes to UK equity exposure, following the move by Thesis Asset Management to shave its allocation to shares across six of its seven portfolios.
Earlier this month (1 September) Thesis announced it had reduced its exposure to shares in British companies by between 2.3 and 5.3 per cent across its investment portfolios, claiming the “hangover” from the EU referendum is yet to be felt.
However, David Coombs, head of multi-asset at Rathbone Investment Management, takes a different stance and is generally positive on the UK market.
“I’m more optimistic about Brexit than others, and we have been increasing exposure to domestic names consistently, such as Lloyds Bank, because we feel there is value there.”
He said he has been pushing up weightings to UK stocks gradually on a day-by-day basis, and said he thinks that will continue for “some time”.
“There is obviously risk and it is not going to be plain-sailing, and some days will be pretty grim, but I feel confident Europe and the UK will come up with a pragmatic solution for trading because Europe cannot afford to lose a G7 market.
“I tend to feel the UK will tend to be okay; yes, we might have some quarters of poor growth but I think that is a blip and the UK companies will be okay.”
Mr Coombs said some UK companies have some “interesting” yields at the moment, and said he thinks sentiment will switch back into those stocks.
He also said one of the biggest risks for funds is to be in line with consensus, adding he positioned his portfolio in line for a ‘Leave’ vote because he felt the risks were greater if that was the outcome.
“When consensus becomes so strong and so convinced, the disappointment potential is so huge,” he said, adding consensus leads to corrections.
Mr Coombs said he was adding slightly more risk to the equity part of the portfolios, but was offsetting that by holding large cash positions, and reducing the corporate bond exposures, meaning the overall risk had remained the same.
Andrew Wilson, head of investments at Towry, said his portfolios tend to have no more than a third invested in UK equities.
He said: “We did not have to take evasive action ahead of the referendum, as we were not over exposed to the UK in the first place, and then enjoyed a fortuitous following wind for our overseas positions from sterling weakness.”
Mr Wilson, who is set to leave Towry this year after it has integrated with wealth management rival Tilney Bestinvest, said equities seem “quite vulnerable” at these levels, and are heading into such a tricky time of year, historically.
“However if one is globally diversified and a multi-asset investor, and less than fully weighted to equities in the first place, then it should not be too anxiety-inducing, and indeed one may then have scope to add to shares on any subsequent market fall.”