Investors should be wary of jumping the gun on a UK recovery, according to Thames River's Rob Burdett, who warns against an over-reaction to improving employment figures.

Yesterday the UK recorded a surprise jump in employment figures, and the percentage of the workforce classed as unemployed ticked down to 7.9 per cent from 8.1 per cent.

However, Burdett (pictured right), co-head of multi-manager at Thames River, says he sees no reason to change his asset allocation on recent news.

He said: “We have just had our monthly asset allocation meeting and we have left the UK in neutral.”

“The economy is just bumbling along, even though the unemployment figure is quite good.”

Eric Moore, co-manager on the PSigma Income fund, is also unmoved by the data.

“Both the UK and US employment data is a bit better, although people say that in the case of the US that may be because there’s an election coming up,” he said.

“We don’t think it matters very much whether UK GDP ticks up or down a half a percentage point, we cannot see it accelerating to two or three per cent.”

“In the UK it’s hard to see where growth comes from. GDP figures may be revised upwards and show a positive number in a couple of months, which will be a nice headline for the news at ten but won’t really make a difference.”

“One number doesn’t make a trend, and it’s still a small number comparatively, just wobbling around zero. We are still cautious about the long term outlook.”

Such opinion contrasts with the optimism displayed by Clive Beagles, co-manager on the JOHCM UK Equity Income fund, who told FE Trustnet yesterday that he believed the UK was out of recession and that it offered good opportunities for capital growth. Star manager Giles Hargreave also recently voiced his optimism with regard to the UK.

Beagles pointed to new car sales growth of 9 per cent in September as a sign of a thriving economy, and said that he saw economic conditions very supportive of the country in the coming months.

Ben Willis (pictured left), investment manager at Whitechurch Securities, says that a fund that focussed on recovery and deep value stocks, such as JOHCM UK Equity Income, would likely be looking to buy into markets earlier than most, as the manager would take a positive outlook ahead of many other market participants. 

Burdett said that although he wasn’t positive on the UK economy as a whole he did think there was value in certain sectors.

“We think small cap in the UK at the moment is the way to go,” he said. “There is a large opportunity and in terms of share price performance it did not do too badly in Q2 which was poor for the market overall.”

Data from FE Analytics shows the FTSE Small Cap ex IT index did fall less and recover faster than the FTSE 100 when the markets dipped in the spring.

Performance of indices over 1yr



Source: FE Analytics

Burdett explained: “Obviously you need to be careful with your exposure here, and you are investing for the long run, but we would argue that you get more bang for your buck from the special sits and small cap funds in the UK market. In that sense we like the more economically sensitive areas in the UK.” 

JOHCM UK Equity Income is a top-10 holding of Burdett’s Thames River Distribution fund.

Moore offers an alternative view to Beagles, despite them both being equity income managers.

He explains that he sees no reason to leave the defensive end of the market.

“In the equity market we like those companies that can produce resilient earnings. Our favourite sectors are consumer staples and pharmaceuticals, and we have nine per cent in telecoms.”

Rather than a synchronised global economic recovery, the manager explains that he and his team – led by FE Alpha Manager Bill Mott and including co-manager Neil Cumming – are ‘war-gaming’ a high inflation environment and thinking about what companies might do well in such conditions.