Wesley McCoy, who runs the £665m Standard Life UK Equity Unconstrained fund, has been buying shares focused on the UK domestic economy as he believes negative sentiment around Brexit has pushed them to attractive valuations.
Mr McCoy took over the fund from Ed Legget in June 2015, and performance has been strong over the past year, gaining 23 per cent over the year to date, compared with 12 per cent for the average fund in the IA All Companies sector in the same time period.
He said: “We added to holdings in domestically focused UK stocks ITV and Dunelm, and opened a new position in (restaurant and pubs operator) Mitchells & Butlers.
"These are examples where investors’ expectations are extremely low as sentiment is focused on prior problems and macro worries regarding the UK consumer.
"When combined with improving stock-specific fundamentals, our conviction has increased in each case. The market is taking for granted that the weakness in advertising is now a structural issue for ITV.
"Dunelm has witnessed like-for-like sales begin to recover, with further progress expected due to initiatives online and one-off impacts from the previous year starting to fade. And in spite of self help measures enabling Mitchells & Butlers to outperform its peers, consensus still has it that margin and topline pressures will continue.”
Martin Walker, who runs the £1.2bn Invesco Perpetual UK Growth fund, is another investor who is finding value in UK domestic shares.
He said it is the “unloved” part of the market, especially as he expects sterling to strengthen.
Mr Walker said “many domestically focused companies are priced at the levels they would be at in a recession.”
He doesn’t believe the UK will enter a recession in the years to come, making the shares attractively valued.
Mr Walker said wage growth in the private sector is higher than the current rate of inflation, and that political pressure will lead to increased public sector wages, and boost the case for UK retailers.
He is particularly keen on the investment case for Marks & Spencer. He said the company was in decline for a decade, but the new management of the company will make changes that Mr Walker believes will deliver returns in future.
Bruce Bulgin, partner in the IFA firm of Chadney Bulgin in Fleet Hampshire, has not been increasing his exposure to the UK market even as valuations have fallen.
He said: “There is no doubt that Brexit may have an impact and we have no way of knowing what this will look like and how it will impact on the UK economy. So in many ways this reinforces our decision to invest globally.
"In short our clients will have a UK exposure but it is not great and we have no plans to change our philosophy. We execute the strategy primarily by buying index trackers."
david.thorpe@ft.com
