The co-manager on the £169m JPMorgan UK Dynamic fund said he and fellow managers Jon Ingram and Blake Crawford dropped Berkley Group and British Land ahead of the vote, hedging against a Brexit vote.
The move proved wise as Berkley dropped 31 per cent in the immediate aftermath and remains 22 per cent down on the pre-vote price. Likewise, British Land fell 29 per cent and is still 19 per cent lower.
Mr Baker said that he would consider adding property names back in as the trio attempt to bring the fund’s performance back in line with its peers. The higher-risk equity strategy has struggled in the past year, underperforming peers and the FTSE 100 index.
He said the cheaper share prices would provide a good entry point if economic data continued to beat expectations. The team are studying land developer Taylor Wimpey due to its stronger-than-anticipated results since the vote.
The manager said it was still too early to fully assess the long-term impact of Brexit on the economy, but he remained optimistic given data released so far.
“If the positive news flow continues to remain in place around the housebuilders, one could argue that they represent value at these levels. They’re all trading at low price-to-earnings ratios and offering attractive dividend prospects as well,” Mr Baker said.
“The Armageddon that was initially forecast does not look like it’s playing out and, in actual fact, we’ve seen some economists revising their GDP expectations upwards for 2017.”
The fund maintained its strong consumer-stock focus – owning British American Tobacco, Reckitt Benckiser, Unilever and Imperial Brands in its top ten. The stocks account for more than 15 per cent of assets. However, the trio became bearish on UK retail sales ahead of the vote and also took the axe to former UK golden child Next. Mr Baker said it was too reliant on the domestic economy and had posted poor earnings before the vote.
Retail sales since June 23 have been mixed. After June and July, figures showed little impact from the outcome, but sentiment in August wavered as sales fell 0.2 per cent.
“We felt the earnings prospects for Next were deteriorating in any event. Businesses that are exposed very much to the domestic economy were likely to be the ones most negatively affected by the referendum result.”
However, while he held a bearish view on the domestic retailer, Mr Baker pointed to a 1.3 per cent allocation to beverage company Fever-Tree as a big contributor to performance. A 2.2 per cent holding in Sage also played its part.
“Fever-Tree’s sales growth has been strong and it is capitalising on the move into premium spirits – if you’re drinking premium spirits you’re going to want to use premium mixers as well. It has been getting a lot of market share.”
The JPMorgan UK Dynamic fund has delivered 22.7 per cent over three years, while the IA UK All Companies sector returned 17.3 per cent over the same period, according to FE Analytics.
