UK funds to recommend as Brexit beckons

UK funds to recommend as Brexit beckons

Brexit has had a negative impact on the UK stock market but this means many stocks are now undervalued.

As a result several investment advisers have revealed to FTAdviser they are now telling clients UK focussed funds represent a very attractive proposition for investors with a longer term view.

Jason Hollands, managing director of Tilney Investment Management Services, said UK equities are the standout value opportunity among developed markets at the moment.

On a 12-month forward price/earnings basis Mr Hollands said the UK market is currently trading on a multiple of 12.2 times earnings, well below longer-term trend and at a discount to both the US on 16 times earnings and the MSCI Europe excluding UK on 13.1 times where the economic picture has been deteriorating at a faster pace than in the UK.

Many domestically facing stocks are now priced at levels typically seen during recessions.

Mr Hollands said: "Of course the reason for this is sentiment driven. Currently UK political uncertainties have resulted in the market being shunned by both many international investors but also UK retail investors, who have collectively been net sellers of UK equity funds in each of the last 20 months.

"While nervousness is perhaps understandable given the relentless news flow around Brexit, avoidance of UK equities is to a large degree unwarranted as the UK equity market is very international in nature."

But, which UK focussed funds are top investment advisers recommending?

Mr Hollands said UK funds he favours include Liontrust Special Situations, TB Evenlode Income and Jupiter Income, for a more value-tilted approach. 

Jupiter Income seeks to produce a high income, increasing at least in line with inflation, from a managed portfolio chiefly invested in UK equities and fixed interest stocks, although with some overseas exposure.

Darius McDermott, managing director of Chelsea Financial Services, said he prefers UK equity income at the moment as the stock market is yielding close to 4.8 per cent, so even if price returns are zero, investors are still getting a decent income return.

Funds he is recommending in this space include Marlborough UK Multi-Cap Growth, which invests more in larger companies than most other Marlborough funds.

Mr McDermott said this is a deliberate move in order to pick up on the growth opportunities across the whole market spectrum.

He said: "The make-up of the UK stock market is very varied: many larger and medium-sized companies get a lot of their revenues from overseas, so if the pound falls, it is not all bad news."

Another fund Mr McDermott is recommending is Threadneedle UK Equity Income, which is a contrarian value fund managed by the highly experienced Richard Colwell, who looks for unloved companies with the ability to sustainably grow their dividends.

The current yield on this fund is 4.3 per cent.

Like Tilney’s Mr Hollands, Chelsea’s Mr McDermott is also looking to Liontrust but he recommends the Liontrust UK Micro Cap fund.