Concerns around Brexit have created a “pocket of opportunity” in UK equity markets, according to Jupiter Asset Management’s Alastair Gunn.
The manager of the £978m Jupiter Distribution fund said: “I do think what we’re seeing is increased volatility within markets, particularly within equities markets.
“And particularly when you look at UK equity markets because of the whole Brexit issue, and that has definitely created a pocket of opportunity at the moment.
“There are a number of domestically-focused UK equities which, perhaps, have never been cheaper over the last 10 or 15 years because international investors in particular are concerned about the Brexit risk.”
But he warned that investors should be very selective and not “just buy those stocks as a basket”, and instead look at the bottom-up fundamentals on a case-by-case basis.
“But there is opportunity there. There is dispersion in valuations between those domestic names and the export names listed in the UK market.
“The exporters have never looked more expensive and the domestic names look the cheapest they have done for the last 15 years,” he added.
Asked how the manager was balancing yield against risk in his fund, Mr Gunn said: “It’s difficult to find yield without taking on additional risk in the environment we’re in at the moment, so you’ve got to be very choosy.
“We would, for choice, sacrifice extra income to forego that extra risk.”
Mr Gunn said, as the manager of a distribution fund, one of the challenges he faced was the risk of a correlated sell-off.
“I think part of the attractiveness of a distribution fund is that you have a diversified portfolio of assets,” he suggested.
“And one of the things that we’re trying to manage and alleviate as a risk, is the risk you can get a correlated sell-off in markets because of a range of big macro-type events.”
He admitted there were a lot of challenges which concerned him at the moment, including the “ever-present” risk presented by Brexit, and the trade wars being escalated by US President Donald Trump.
He explained one way to manage those risks in the Jupiter Distribution fund: “For example, we might consider some kind of derivative instruments to try and protect the downside of the fund in a way that, perhaps, owning straight equities and bonds isn’t going to protect the fund.”
Watch the full interview with Mr Gunn at the top of the page.
eleanor.duncan@ft.com