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.”
One of the biggest risks for funds is to be in line with consensus David CoombsMr 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.”
He said it was different if investors are currently heavily exposed to equity markets, adding he can see why one might want to act to temper risk.
The investment chief said he has the portfolios on a “tight leash” heading into the autumn and doesn’t feel the need to reduce exposure, particularly if the markets didn’t fall, which he pointed out would make it difficult to know when to get back in.
Seven Investment Management (7IM) multi-manager Ben Kumar said many British investment managers have UK equities as their largest position, and in particular focus on the mid-cap section of the market.
“Many of these managers will have held their positions through the EU Referendum, in anticipation of a ‘Remain’ vote,” he said, adding some would have breathed a sigh of relief that the UK mid-cap market bounced back quickly and continued to rally.
“The ramifications of the vote for the UK to leave are going to become clearer and clearer over the next few months, and with that in mind, we are definitely starting to see some profit-taking occurring across the industry.”
Mr Kumar pointed out the 7IM portfolios have been underweight in UK equities for a while, with no exposure to the more domestically-focused UK mid-caps.
“As expected, our international assets have performed very well, and it has been a pleasant surprise that the FTSE 100 has kept pace,” adding, however, the FTSE 100 is a more international index than it is a reflection of the UK economy.
“We may look to trim back our FTSE 100 position at some point, but this will be based on valuations rather than related to Brexit fears.”
katherine.denham@ft.com
