Listed asset management businesses and housebuilder shares are likely to be the two sectors of the UK equity market that suffer most as volatility increases, according to Alastair Mundy, who runs the £887m Investec Special Situations fund.
Mr Mundy has long held the view that the end of quantitative easing, and consequently the introduction of higher interest rates, will lead to a stark shift in how equity markets perform.
He said investors seeking to avoid the pitfalls of a shift in market sentiment should consider that "the two areas of the market that have benefitted most from QE, asset managers and housebuilders, are those likely to fall most as those policies end."
Many market participants, including the fund manager Neil Woodford, take the view that quantitative easing pushed asset prices up to a level that was not justified by the earnings achieved on those assets.
Because asset management companies earn revenue as a percentage of the assets they manage, higher asset prices mean more revenue and profit, and as QE ends and stock and bond prices revert to valuations more in line with their earnings, the assets under management of those companies should fall and drag revenues and profits down.
Housebuilders have benefitted from lower interest rates making borrowing costs more affordable and boosting the buy to let market.
Ben Russon, who jointly runs £700m across a range of UK equity income mandates at Franklin Templeton, said he remains keen to invest in UK housebuilders, however.
He said: "We are not building enough houses, [therefore] there is a profound supply and demand issue and that is supportive."
Mr Mundy said his normal investment style was to buy the stocks that have fallen farthest, the what he calls "unloved" part of the market, but he said "some shares fall for a reason, and the key is not to buy those".
Mr Mundy’s view contrasts with that of Nick Train, who runs the £1.2bn Finsbury Growth and Income trust.
Mr Train has been buying more shares in financial services companies the London Stock Exchange (LSE) Group and Hargreaves Lansdown, as he feels the long-term issues around retirement planning will benefit equity markets, and drive share price growth for those businesses.
Jonathan Davis, who runs Jonathan Davis Wealth Management in Hertford, said he was ignoring the present noise in the market.
He said: "In the scheme of things, a 10-20 per cent fall is entirely normal for the stock market, most years, without changing the bigger picture."