While Brexit uncertainty is keeping many investors from buying what looks like a cheap UK market, those with a long-term view should consider snapping up bargain stocks.
There’s less than three months until the UK’s official EU exit date and we’re no more certain what kind of deal will be on the table by 29 March 2019 than we were a year ago. As a result, most global investors have sold our of their UK positions and are playing a wait-and-see game before they start dipping in again.
But some contrarian investors have already started re-building their UK exposure. That includes Sheridan Admans, investment manager at The Share Centre, who manages the broker’s multi-manager funds.
“Our starting point is valuations looked good last year and are better now,” explains Admans. “If we’re making investments for the long term for our investors, we need to be taking some exposure to those opportunities.”
That includes both debt and equity exposure, with most of the former coming through asset-backed securities, which he says gives his funds regional exposure from products that are backed by floating rate yields.
Admans outlines his equity fund picks to us below.
Crux UK Special Situations
Admans says manager Richard Penny is someone he’s “had interest in for years”, ever since his Legal & General days when he consistently delivered for investors. As a result, he bought Penny’s new offering, Crux UK Special Situations, at launch.
Penny, who talked us through his new portfolio late last year, can invest across the spectrum and is not afraid of taking positions in some of the smaller Alternative Investment Market quoted companies where he sees value.
“We know how he manages money, how he thinks about markets and the way he looks at companies and understands their fundamentals,” adds Admans
“That’s not to say he’s going to do fantastically whatever the outcome of Brexit, but we are very confident in his ability to build a portfolio that should help us deliver that value we see in UK markets.”
Miton Multi Cap Income and Finsbury Growth & Income (FGT)
Professional investors fail to reach concensus as to how far along the stock market cycle is, and as a result whether you should be backing growth or value stocks to outperform in 2019.
Admans believes that the stock market rally is not quite over, despite many equities now being in bear market territory. As a result, he likes the Miton Multi Cap Income fund, which looks to target companies up and down the capitalisation spectrum.
Managed by Gervais Williams and Martin Turner, the fund is well-diversified with 140 holdings and its top 10 list is unrecognisable from most UK equity income offerings. At around 4.7%, the yield holds up well to peers, though.
“It’s invested in companies that are delivering growing income at good valuations. We’re not expecting that portfolio to set the world on fire, but we think the downside risk should be protected.”
Admans matches this multi-cap fund with a large-cap pure-play, the Nick Train-managed Finsbury Growth & Income. He says this should give investors decent downside protection due to its focus on stocks that can weather most market conditions.
The trust earns a top Morningstar Analyst Rating of Gold. Analyst Peter Brunt calls it a "standout choice for investors comfortable with a highly concentrated portfolio that can look markedly different from the FTSE All Share Index."
Merian Chrysalis (MERI) and Woodford Patient Capital (WPCT)
A final pair of investment trust of interest to Admans are focused on unlisted companies. Merian Chrysalis floated on the stock market last year and Admans added it to his portfolio, while the Woodford offering was added at around the 80p mark following poor performance.
Both are packed with “potentially disruptive stuff” including technology and healthcare companies, both of which are areas Admans likes.
Merian, managed by Richard Watts and Nick Williamson who both have experience investing in small and mid-cap UK equities, invests in businesses that have been around for a long time and have a strong customer base and strong and proven platforms, but that have not come to the public markets yet.
Woodford, meanwhile, benefits from a manager, in Neil Woodford, who has “years of experience managing this type of fund and has been through a few recessions”, says Admans.
A final point made by Admans is that these strategies are extremely popular with institutional investors, who are keen to gain exposure to unlisted markets, which continue to prosper.
This means that, while valuations will contract should market conditions deteriorate significantly, these long-term investors are less likely to rush for the exit immediately – “it’s sticky money”.
