James Thomson, the respected investor who oversees the Rathbone Global Opportunities fund, has been moving his portfolio out of the UK stock market following last June’s Brexit vote.
He is not alone, with figures from the Investment Association (IA) showing that retail investors have also been giving UK equity funds the cold shoulder. In total £290 million was withdrawn in the month of July, while in contrast equity funds overall were in positive territory, taking in £958 million of new investment.
Thomson, who manages £1 billion of assets, has cut exposure to UK equities significantly, from 25 per cent before the referendum to 7 per cent today. He says there are too many uncertainties over how the UK’s divorce proceedings with Europe will pan out, so as a result has decided to ‘make a meaningful shift’ and ‘take advantage’ of his global remit.
‘I just do not know what Brexit is going to do to the growth rate of the UK economy,’ says Thomson. ‘So therefore I have decided to invest elsewhere while the various Brexit clouds continue to hover – there are too many question marks.’
In total Thomson has sold more than half-a-dozen UK shares, including WPP, the advertising and marketing company, and bookmaker Paddy Power Betfair. He has invested the proceeds by topping up existing positions, but has also introduced a couple of new names into the portfolio.
These include drinks firm Heineken, which in turn has helped boost the fund’s European weighting from 24 per cent to 30 per cent over the past year.
Overall Thomson is cautious on the outlook for the global economy, which is why he is focusing his sights on companies that he deems ‘weather-proof’ due to their ‘reliable growth-like qualities’. The companies he seeks are those with sustainable growth profiles and pricing power.
Other fund managers, including some UK fund managers, have been boosting exposure to companies with international earners. In the wake of the Brexit vote, large-cap stocks that derive most of their revenue overseas have been given a boost by the weak pound, due to the fact that their exports are made considerably more competitive.
Some UK fund managers, including Chris Hutchinson, of the Unicorn Outstanding British Companies fund, have moved to take advantage. ‘We now have eight FTSE 100 companies and with them more global exposure, in order to play into businesses where the weak pound is a tailwind.’ Three of the names Hutchinson holds are WPP, Diageo and British American Tobacco.
Investors go global
Global equity funds proved the most popular among equity funds, recording £607 million in new investments during July. According to Adrian Lowcock, investment director at Architas, UK investors ‘continues to remain wary of their home market as Brexit negotiations dominate the headlines’.
Mark Dampier, head of investment research at Hargreaves Lansdown, agrees Brexit has spooked investors. According to Dampier, ‘it isn't surprising that the UK doesn't focus well, given the relentless negative press coverage on Brexit’.
He adds: ‘We saw a similar reaction to Europe in 2012 when everyone was worried about the Greek debt pile and the prospect of a Grexit. Yet back then it was a great buying opportunity, but only in the last few months has Europe become popular again.’
While acknowledging that it is important to diversify, Dampier thinks it is wrong to write off the UK equity funds, and by extension UK shares. ‘Unfashionable regions are always worth a closer look, but for the majority of investors the UK should form the core of their portfolios,’ he says.
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