Two years on from Brexit, three fund managers share their UK outlook

At a recent roundtable, three fund managers discussed prospects for the under-loved UK stock market.

Two years after the EU referendum, investor sentiment towards the UK continues to be subdued. While the FTSE 100 hit a new record high last month, UK-focused funds continue to be out of favour. Investors have taken some £8 billion out of UK equity funds since the Brexit vote, according to the latest figures from the Investment Association (IA)

Concerns about an economic slowdown in the UK and a raft of uncertainty surrounding Brexit are ever-present. At a recent round table discussion at the Association of Investment Companies (AIC), Neil Hermon, fund manager of Henderson Smaller Companies investment trust, said: ‘The UK economy has one of the slowest economic growth rates in the G7, consumers are squeezed, and investors are moving away from the UK.’

Georgina Brittain, co-manager of the JPMorgan MidCap trust, said: ‘As we had anticipated, the two immediate impacts of the Brexit vote in June 2016 were a rise in inflation and sterling weakness.’

While the general message heard by investors seemed to be to sell both UK small and mid caps, Brittain argues that mid-caps have outperformed large caps over the last 14 years. But over the last two years since the Brexit vote, the FTSE 100 returned 31 per cent, while the FTSE 250 underperformed it by 2.3 per cent.

Brittain added that following Brexit, she shifted away from consumer-focused companies. Two years on, she continues to avoid leisure companies such as pub companies and general retailers, with JD Sports Fashion as an exception. However, she does like certain domestically exposed areas such as the challenger banks and technology companies such as Sophos. 

Alastair Mundy, the contrarian portfolio manager of Temple Bar investment trust, said he continues to focus on ‘recovery stocks’ which are out of favour but may return to form in the long run. He said: ‘The portfolio has certainly taken on a more UK-centric feel in the last 12 months, but as usual retains its strong value bias.’

Commenting on the consequences of Brexit, Brittain argued that the UK would ‘muddle through, we won’t actually walk into a brick wall’. But Hermon was less sanguine. ‘Nobody knows the answer, we might muddle through or it might be a disaster,’ he said.

‘Brexit is one thing to worry about, but so is the US president, the state of Europe, quantitative easing and China,’ Mundy said, adding: ‘We’ve been through recessions before.’


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