A combination of Brexit, political turmoil and the deep impact of Coronavirus has led to a depressed picture for UK equities since 2016.
Last year, outflows from UK equities funds topped £4.4bn, and the UK All Companies sector has been the worst-selling Investment Association sector for five of the past seven years.
However, 2022 might be the year in which UK equities ride back into popularity, and indeed the markets have already swung back into favour since the start of the year as US markets experienced severe crashes.
Fund manager Nick Train said the opportunities for UK equity markets are “hugely encouraging” and experts are touting the start of a cyclical shift back to value stocks, to which the UK equity markets are heavily weighted.
Below are some fund selectors’ top picks for investors looking to gain exposure to the UK equity market.
Jupiter’s UK Special Situations Fund
Meera Hearnden, investment director at Parmenion picked Jupiter’s UK Special Situations fund.
She said the UK market is cheap in valuation terms, compared with other developed markets, and given that value stocks have been “ignored” for so long, there is potential for a significant re-rating.
“These are generally more cyclical, and in an environment of upward rising interest rates, these are likely to do well," she said.
The fund, managed by Ben Whitmore, posted a 20.18 per cent return last year, and so far this year has outperformed the sector by over five percentage points, with a 3.73 per cent return.
Hearnden said: “I appreciate the fund had a great 2021, but that was only the beginning after several years of underperformance in my view.
“It’s great to see the fund demonstrate resilience in the more recent choppy markets and outperform its peers, so it’s off to a good start.”
JO Hambro UK Dynamic Fund/JO Hambro UK Equity Income fund
Two fund selectors picked JO Hambro’s funds, which have both recently re-opened as a result of the “high conviction” the firm has in the outlook for UK equities.
Nick Wood, head of investment fund research at Quilter Cheviot, picked JO Hambro’s UK Dynamic fund.
Value plus, looking for companies with undiscovered growth potential - they will look cheap and are in that value bucket, undergoing change that the market has not appreciated yet.
Wood said he had a few other funds in mind that had a more pronounced value-bias skew, but decided on something with a bit more balance in it.
Stephen Peters, portfolio manager for Barclays Wealth & Investments, picked the UK equity income fund.
One swallow does not make a summer he said, but last month showed that highly valued, well-loved, medium and smaller sized companies can underperform.
“If these conditions continue – and it should be said there has been a few starts to a new year recently where value rallies, only to peter out in subsequent months – the JO Hambro Equity Income fund is well positioned to do well.”
The fund’s style is contrarian, dividend and value focused and has an increasing lens on ESG matters, he added.
But Peters cautioned that the swing to value might not be as concrete as it feels.
“If it is yet another false dawn for value and larger company investors, the JO Hambro fund will likely underperform other funds that choose growth, and quality, over value.”
Crux UK Special Situations Fund
Rory McPherson, head of investment strategy at Punter Southall Wealth, selected this fund which was opened a mere 18 months ago.
Despite this, it has posted a 46.5 per cent cumulative performance in the past three years, and beat the IA UK All Companies total return by nearly 8 per cent in 2021.
The fund is run by Richard Penny, who joined Crux from LGIM in 2018, after managing the L&G UK Alpha Trust and UK Special Situations Trust.
"He is looking at growth opportunities at attractive valuations," McPherson said.
"We've been following Penny for a long time...[Crux] is a boutique so he has more autonomy and flexibility."
sally.hickey@ft.com
