Economic uncertainty shouldn’t tempt investors into more defensive assets, according to Standard Life Investment’s Andrew Hunt.
Mr Hunt runs the £45m Standard Life UK Equity Recovery fund and he said he is avoiding bond proxy shares such as Unilever and Reckitt Benckiser.
Instead he sees value in some UK consumer shares. He has been a shareholder in Dixons Carphone, as he said negativity towards any business with exposure to the UK consumer is "priced as if there is going to be a depression".
He said such extreme negativity represents an opportunity for investors.
Mr Hunt said those bond proxies, often popular with investors at times of market strife, were unattractive at the moment because the yield on US government bonds had risen to around 3 per cent.
He said a key reason many investors buy the shares of large consumer companies is they view the income as being almost as safe as that of a bond. He said those shares performed extremely well in recent years as bond yields were low, increasing the relative attractiveness of the income from large consumer stocks.
Mr Hunt acknowledged it is extremely unusual for bond yields to be rising at a time when economic uncertainty is also increasing, but he said it looks inevitable US interest rates will rise, which will lead to higher bond yields and so make the defensive shares unattractive.
Peter Boyle, managing director at Kennox, which has the £230m Kennox Strategic Value fund, said he tends to sell shares that reach a valuation of 20 times annual earnings, which is close to or above the level at which most defensive equities trade.
Meanwhile Edward Park, investment director at Brooks Macdonald, said he has marginally reduced his exposure to US equities as interest rates rise and Sebastian Lyon, who runs the £4.3bn Troy Trojan fund, said the sell-off of defensive shares had created opportunities for investors.
David Scott, an adviser at the firm of Andrews Gwynne in Leeds, said he expected US interest rates rising to trigger another crash, and said the market was "complacent" about the level of political risk.