Polls have narrowed in recent weeks, surprising investors and markets as they suggest a colossal change to the world’s sixth largest economy may be in on the cards. Less than an hour before markets opens on Friday the results of the referendum should be known and Godber, manager of the £100m CF Miton UK Value Opportunities fund, says he will be ready to pounce on a host of UK stocks that he believes will see an upswing as sterling plunges in value.
“If this happens we are forced to react, as is every single business, because this is a very ground-breaking event,” Godber (pictured) said.
“However, I think the bookies are right and the polls are wrong. It is an unlikely event. However, we cannot deny that it might happen and were it to happen it is so hugely complex and difficult you would see a five per contraction in GDP quite quickly, house prices would fall between 10 and 30 per cent and sterling could fall 10 per cent”
“I have got a number of businesses lined up that we will look to substantially increase our holdings in. They are all international facing, world-class businesses that would see a significant uplift from a weaker sterling. They are strictly consulting, services, sales, and metals and mining type businesses.”
Godber adds that the effect of sterling on UK equity markets is key to their medium performance.
“A yes vote will be most acutely expressed through the currency markets. However, it cannot be argued that Unilever will subsequently sell less Hellman’s mayonnaise next year than they did this year; so you have to isolate the two events.”
“With 80 per cent of UK stock market earnings derived overseas there are very big chunks of the market that will have a very big upgrade from a weaker currency.”
He says a large appreciation in sterling since 2010 has hurt UK businesses because of the translation of profits from overseas or because they are competing against companies dealing in weaker currencies such German currencies who deal in the euro.
“There are a number of international earners who will benefit after having a very heavy downgrade for the last year 18 months.”
Sterling is up 13.40 per cent since May 2010, when the UK voted in a coalition government and the market began to price in an economic recovery from the depths of recession.
It reached 20 per cent back in July but has fallen since as the referendum began to loom.
Performance of sterling versus dollar since May 2010
Source: FE Analytics
The stocks Godber will add to in in the event of a ‘Yes’ vote are a tobacco company and a mining company.
“Our portfolio is 100 per cent driven by valuation but stocks such as Imperial Tobacco and Rio Tinto – which have recently come into the fund – will benefit from this,” he said.
Both stocks have made money since 2010 but both have seen downgrades due to the currency’s strength, amongst other trends such as falling commodity prices in the case of Rio Tinto.
Performance of stocks and index since May 2010
Source: FE Analytics
Such stocks are widely held in the IMA UK All Companies sector among dedicated large cap managers. Funds such Richard Buxton’s Old Mutual UK Alpha, FE Alpha Manager Nick Train’s CF Lindsell Train UK Equity fund and FE Alpha Manager Nigel Thomas’ AXA Framlington UK Select Opportunities all have high weightings to such multinationals.
According to FE Analytics, the three funds have outperformed the sector average over the past three years and made more than the FTSE All Share has gained, despite a period of relative outperformance of small and mid-caps over this period.
Performance of funds, sector and index over 3yrs
Source: FE Analytics
FE Trustnet recently looked at what some of the implications for a weaker sterling could be for investors’ portfolio.
Trevor Greetham, director of asset allocation at Fidelity also agrees that sterling will fall hard in if Scotland votes ‘Yes’, with the market selling off.
“The market will overreact and on the downside and you’d be better off buying it rather than selling it. More generally, it will also mean a lot more volatility and disruption, which will reduce the chance of interest rates rising,” he said.
Godber believes that the while a ‘Yes’ vote will not mean armageddon for the rest of the UK economy, he says that it will cause for certain areas of the market.
“It is not to say the rest of the UK domestic businesses will fall off a cliff but from the bright spot that the UK has been, it will face significant disruption.”
“You can easily imagine the complexities that certain companies face when you have a sizable operation in Scotland and you forced to relocate your manufacturing.”
“I don’t own British aerospace but in the event that they need to move the entirety of their manufacturing capability from Glasgow – an immensely complex exercise – it will be vastly expensive and the UK government will underwrite this part of this but it will hugely difficult.”
Godber has managed his CF Miton UK Value Opportunities fund since its launch in March 2013.
According to FE Analytics, it has been the third best performing portfolio in the highly competitive IMA UK All Companies sector over that time with returns of 28.96 per cent, more than doubling the FTSE All Share’s gains over that time.
The fund has garnered a lot of attention due to Godber's recent performance, with many experts highlighting it as a possible alternative to the Julie Dean's old Schroder UK Opportunities fund. Miton purchased the FP Matterley Undervalued Assets fund from Charles Stanley. Godber and his co-manager Georgina Hamilton had previously worked on the Matterley portfolio and the plan is to combine the two at a later date.
CF Miton UK Value Opps has an ongoing charges figure (OCF) of 1.12 per cent.