Brexit's "multi-act drama" has made Seven Investment Management cautious on UK companies, a senior portfolio manager at the firm has claimed.
As Conservative cabinet in-fighting continues, and the prospect of a poor or no deal from Brussels appears to be on the cards, Damian Barry said the team at 7IM was going moderately underweight in the UK.
He said: "As we approach the final stages of what would appear to be act 1 ("The Exit") in a multi act drama, the uncertainty that comes with a 'no deal' scenario makes us cautious on UK companies. In short, there may come a time when UK companies in general are extremely good value. We don’t think we are there yet."
Mr Barry said the political uncertainties would get reflected in market volatility, which may eventually make UK multinationals too cheap to ignore, but in the meantime, there were other asset classes that looked attractive to the team, which did not carry the same level of risk as UK stocks.
He added: "In the short to medium term, UK large cap stocks will continue to be driven by sterling. UK multi-nationals often have significant overseas revenue, and sterling fluctuations will have a bearing on those revenues.
"Sterling has weakened significantly in recent months, inflating the value of foreign revenues and these company share prices. A rebound in sterling may be a headwind for UK large caps, so we are underweight."
However, not all fund managers are taking a negative view of the UK. For example, the UK team at Columbia Threadneedle are nearly fully invested, keeping cash low across funds, including the £2.3bn UK fund, £4.2bn UK Equity Income fund and £224.5m UK Smaller Companies fund.
Chris Kinder, manager of the Threadneedle UK Fund, said there were so many global risks that anomalies were appearing in various parts of the market, which the team was keen to exploit.
He explained: "We are seeing some evidence that global growth is softening and political risks are, once again, on the rise.
"Given this deterioration in macro economic conditions, we would note that the divergence between the valuations of ‘cyclicals’ and the more traditionally defensive areas of the market looks anomalous.
"We are looking to build resilience in portfolios by increasing exposure to less economically sensitive companies in the most oversold and out of favour areas of the market."
Earlier this year, investment trust managers were surveyed by the Association of Investment Companies. According to Neil Hermon, fund manager of the Henderson Smaller Companies trust, while there was uncertainty caused by the drawn-out negotiations, the market was still forging ahead.
He commented: "Most UK corporates are carrying on and investing for the future, recognising that Brexit carries substantial risks, but aware that life goes on and the world will still keep on turning."
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