Barnett reveals his two best UK opportunities

Barnett reveals his two best UK opportunities

Mark Barnett, who runs the £10bn Invesco Perpetual High Income fund among other mandates, has revealed the two best "opportunities" he sees for UK equity investors right now.

Mr Barnett said he made his recommendations based on the two topics on which he gets most persistently questioned by clients - Brexit and his substantial exposure to the UK domestic economy. 

The fund manager said that while global equity markets continue to perform well as investors price in improved economic growth, which may not be justified, the UK is the exception to this as the market pricing has factored in “quite a lot of bad news already”

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Steve Davies, who runs the £1,2bn Jupiter UK Growth fund, agreed with Mr Barnett's optimism.

He said the valuation of many UK shares are at a level not seen since the financial crisis, when the UK was in recession.

But Mr Davies noted the UK is not presently in a recession, and the Bank of England is not currently pricing in a recession. 

Mr Barnett said the uncertainty around Brexit uncertainty is at its “peak” right now, and the picture will get less cloudy as the negotiations progress. 

He said the Bank of England's decision to increase the base rate last week, and signal that there are likely to be two more rate rises within 18 months, suggests “this is perhaps the Bank of England saying the UK economy is in better shape."

He said the value of sterling, despite recent gains, is as low as it was in 1984, in the teeth of the miners strike, when investors felt the country’s government could collapse.

Mr Barnett said the earnings being achieved by UK domestic companies do not justify the market’s view that those sectors will suffer.

Two substantial holdings in Mr Barnett’s funds are Capita and Next, both of which derive the greater part of their earnings from within the UK and both of which have suffered sharp share price falls in the face of weak earnings.

He added that UK property companies, such as Shaftsbury have also been pushed to extreme low valuations by negative sentiment towards the UK economy.

The second area Mr Barnett said is his best opportunity right now is in the oil sector.

Mr Barnett said he is not bullish on the oil price, but has been buying shares in the big oil companies because they have been cutting costs, generating enough cash to reward shareholders.

He said: “They are more profitable at $40 (£30.41) oil than they were at $100 (£76) oil because they were spending more. But the ability to pay dividends has improved now.”  

He owns shares in both BP and Shell, and said he expects the share prices to rise in the coming months.

Ian Lowes, managing director at adviser firm Lowes Financial Management, said he has long put client capital into Mr Barnett's funds, due to a very long-term track record of strong performance.