Alastair Mundy, who runs the £1bn Investec Special Situations fund and the £1.04bn Temple Bar investment trust, is turning to UK domestic shares for value.
Mr Mundy describes himself as a value investor, typically buying the shares most out of favour with the wider market.
He said shares exposed to the UK domestic economy, in the banking and retail sectors, are where some of the better opportunities are right now.
Mr Mundy is particularly keen on the retailers selling DIY products, such as Grafton Group, which is a top 10 holding in his Special Situations fund.
He noted the recent signs of decline in the UK housing market, and said homeowners who might have been looking to move may now choose to extend or renovate their existing property, which benefits companies such as Grafton.
He is also keen on the UK food retailers, Morrisons and Marks & Spencer.
In both cases he said management action in Morrisons and Marks & Spencer was key to improved shareholder returns.
Mr Mundy then turned to the banking sector.
He has invested heavily in Barclays shares.
The fund manager said the recent results from the company were mediocre but added Barclays is a “super tanker, and those take some time to turn around.”
Barclays most recent accounts showed returns hampered by the performance of the investment banking division.
Mr Mundy said low levels of volatility in asset markets have led to poor returns from investment banks in recent years, but that the disruption caused by interest rates rising around the world will create the market ructions needed to grow investment bank profits.
Mr Mundy said the management of the bank are “well aware” of investors concerns.
Rob James, banks analyst at Old Mutual Global Investors, said rising interest rates can also boost the returns achieved by banks because bond yields will rise.
"Investment banks are required to hold a significant slug of their capital in liquid assets such as bonds and cash, the yields on which will rise along with interest rates.
James Pigott, who runs Pigotts Investments in Dorking, Surrey, said he has been reducing his holding in Mr Mundy’s Temple Bar investment trust due to recent underperformance.
david.thorpe@ft.com
