While growth in the emerging markets has begun to slow down, developed countries such as the UK and the US have moved into recovery mode.
This has meant companies that benefit from a strengthening UK economy have received wide investor interest over the last 12 months, with many UK managers singing the praises of sectors such as real estate and housebuilders.
Many investors have increased their exposure in recent months, even though these areas have already had a good run.
However Richard Peirson, who runs the five crown-rated AXA Framlington Managed Balanced fund, says they may have already missed the boat and that he is now taking money off the table because many companies look fully valued.
"I am finding it harder to find opportunities in the UK," he said. "We had run a number of themes in the UK and though I wouldn’t say this has been fully played out, I would say the recent good performance is now reflected in their valuations."
"The domestic situation has improved, with the UK economy doing much better, and as a result the themes we had were in real estate and housebuilders. Around 18 months ago I put money in companies such as Persimmon and Barratt Developments."
"Though I think the housing environment could still be strong, that is now very much reflected in the price," he added.
Barratt Developments and Persimmon have been two of the best-performing names in the UK market so far this year.
According to FE Analytics, investors in both stocks would have seen returns of more than 40 per cent if they bought in January. As a point of reference, the FTSE All Share is up 14.39 per cent over this time.
Performance of stocks vs index year to date
Source: FE Analytics
Peirson continued: "Last year I was buying Barratt Developments at around £1 but now those shares are around £3. I have been top-slicing that exposure as you never quite know how overheated things have become."
"Right now, it is time to take a few profits."
Peirson has managed the AXA Framlington Managed Balanced fund since March 1994. It has returned 203.79 per cent over 15 years, nearly 100 percentage points more than the IMA Mixed Investment 40%-85% Shares sector.
Performance of fund vs sector over 15yrs
Source: FE Analytics
Our data shows that the £515m fund is also a top-quartile performer in the sector over one, three, five and 10 years.
AXA Framlington Managed Balanced has an ongoing charges figure (OCF) of 1.27 per cent and requires a minimum investment of £1,000.
FE Alpha Manager Mark Martin (pictured), who runs the five crown-rated Neptune UK Mid Cap fund, agrees with Peirson and has also chopped down his overweight exposure to UK housebuilders.
Although he also thinks the sector is looking fully valued, he says housebuilders could face headwinds as he expects more new-builds, which would affect the current supply-demand dynamic in the UK.
"We had been overweight and we had got in pretty early to the UK housebuilders," he said.
"What we have done is to move from an overweight to the underweight, which may seem counterintuitive given that I expect an increase in supply of new houses – but that new supply would change the demand."
"Another thing about the housebuilding sector is it is now on 1.6x book value – which is very much at the upper end. We originally bought into the sector when it was unloved and cheap but now it is fair to say it is pretty well loved."
"The sector has performed very well but I think there have been a lot of momentum buyers looking for quick returns. For me, with valuations being the main focus, I think the margin of safety of buying into those names has now diminished," he added.
Although Martin says that investors should be avoiding the housebuilding sector, he "still likes the housebuilding cycle" so is instead looking for alternative ways to play that theme.
He is focusing on stocks that will benefit from new homeowners, in particular Marshalls – which is a manufacturer of natural stone and concrete hard landscaping products – and Carpetright, the floor coverings retailer.
Martin’s £114m Neptune UK Mid Cap fund is the top performer in the IMA UK All Companies sector over three years with returns of 99.25 per cent, beating the FTSE 250 ex IT index which has returned 64.03 per cent.
The fund has an OCF of 1.67 per cent and requires a minimum investment of £1,000.
