Merian Global Investors fund manager Richard Buxton has been among the beneficiaries of the shift in sentiment on UK equities, with his £1.7bn UK Alpha fund attracting its first monthly net inflows since the Brexit vote more than three years ago.
The fund attracted a net inflow of £29m in October, with Mr Buxton confirming this was the first month of net inflows since June 2016, when the UK voted to leave the EU.
Mr Buxton’s fund had been out of favour with investors due to his focus on a number of UK-focused stocks, and stocks that trade at low valuations, rather than companies that derive the greater part of their earnings from overseas.
Investors wary of the outlook for the UK economy as a result of Brexit have shunned domestically focused stocks and instead piled into those companies which derive the greater part of their revenue from overseas.
Throughout that time Mr Buxton has maintained significant investments in sectors such as UK banks and retailers. Financial companies account for 20 per cent of the capital in the fund, though not all of this is companies that are UK focused. HSBC, a top-ten investment in the fund, derives only 10 per cent of its profits from the UK.
The focus on out-of-favour stocks has hampered the performance of the fund since the Brexit vote. The fund has returned 22.4 per cent, compared with 22.8 per cent for the average fund in the IA UK All Companies sector in the same time period.
The possibility of the UK leaving the EU without a deal was among the factors weighing most heavily on UK shares. But those concerns lessened last month once the Conservative Party secured a new withdrawal agreement with the trading bloc.
The performance of UK-focused equities has improved as a result, and the shift in market sentiment has boosted inflows to domestically focused funds.
Mr Buxton said that investors globally were more enthusiastic about investing in equities because they believed the interest rate cuts in the US meant the threat of recession has receded for now.
The shift in sentiment that has benefited Mr Buxton has had precisely the opposite effect on managers such as Nick Train, whose Lindsell Train UK Equity fund is filled with companies that derive the greater part of their earnings from overseas. That month had an outflow of £600m in October, the same month Mr Buxton had the inflow of £29m.
Ben Yearsley, director at Shire Financial Planning in Plymouth, said he had recently bought more of Mr Buxton’s fund for his clients. In contrast, he has sold his holding in Lindsell Train.
Of Mr Buxton he said: “He has a very long-term track record of performance, and crucially of performing better than the style of investing he uses performs.”
Adrian Lowcock, head of personal investing at Willis Owen, said: "It is a real sign of the shift in markets that Lindsell Train is shedding assets while Richard Buxton's fund is gaining them. Richard is a real value manager, but sometimes has periods of underperformance because he moves into investments very early, and it takes time for the market to catch up. But he is good at risk management, so even if he has a lot of UK domestic shares, there will always be a good number of international earners to achieve a balance."