Will Meadon, who jointly runs the £482m JP Morgan Claverhouse investment trust, has been moving into large caps as he seeks safe sources of income.
The trust has has a strong year, returning 21 per cent, compared with 12 per cent for the average fund in the AIC UK Equity Income sector in the same time period.
The fund manager said a decision to reduce exposure to mid cap equities has been key to that performance.
The trust has increased its dividend for each of the past 44 years.
Mr Meadon said that right up until the weeks prior to the European Union referendum vote on 23 June 2016, he, in common with most of the other managers in his sector, had been heavily overweight mid and small caps, and underweight the FTSE 100, as that “had been where the returns were.”
But he said, in contrast to many other investors, he viewed the referendum vote, before the result was known, as a risk to protect the portfolio against, rather than an opportunity for profit.
With that in mind, he reduced his exposure to UK mid caps before the referendum as he felt those would be the shares most likely to suffer if the country voted to leave.
He said he expects the UK economy and stock market to weaken from here as the implications of the vote are felt.
This has prompted Mr Meadon to reduce further the trust’s exposure to mid caps, and invest more in the FTSE 100.
He said: “It seems wrong to speak with any confidence about what is going to happen to the economy as a result of the EU referendum vote, and I would certainly be wary of anyone who tells you they know what is going to happen with the negotiations.
"So I think it is prudent to invest in the larger companies with earnings from overseas.”
He has substantial exposure to the oil and tobacco sector, and to HSBC.
Mr Meadon said “this time last year there were a lot of questions being asked about the sustainability of the dividends of those companies, but HSBC is doing a share buyback and I don’t think anyone doubts the ability of BP and Shell to pay the dividends now.”
One FTSE 100 stock on which he is particularly keen right now is Ashtead.
This is a company that rents out plant used in construction and industry.
The fund manager said he began buying the shares last year in expectation that US economic growth would “accelerate”, which it has, and that even on the most bleak outlook for the markets in which it operates, the dividend looks secure.
Mr Meadon has a policy of not allowing any holding to get to a point where it is more than 2 per cent larger as a proportion of the portfolio than its weighting to the market as a whole.
With that in mind, he has sold some of his shares in drinks maker Fevertree.
He began buying the shares when they £4 and £6 and began selling when they reached £17.
The Claverhouse investment trust has more than one year of dividend payments in reserve, something which Mr Meadon said means “there is no prospect” of the dividend being cut in the near term.
Tony Yousefian, investment trust analyst at FundCalibre, said: "It is having a good run year to date (to 3 October) returning 14.9 per cent versus the sector average of 10.92 per cent in share price terms, but over longer periods, it isn't as good.
"In absolute terms, the trust's returns have been OK but the longer term outperformance over the sector average is too low when the beta is taken into account.
"This means that the alpha generated by the manager is not consistent or significant enough for us to consider it."
Sheridan Admans, analyst at The Share Centre, said small and mid-caps have begun to perform a little better relative to large caps because investors are wary of the impact of rising interest rates on the FTSE 100, while relative sterling strength has meant fewer managers buying the FTSE 100 for overseas earnings.
The Claverhouse investment trust trades at a discount to net assets of 7.7 per cent.
david.thorpe@ft.com
