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The global funds taking the biggest bets on the UK heading into Article 50

03 April 2017

FE Trustnet seeks out the funds listed in the IA Global sectors that have high weightings in UK equities versus the MSCI World index.

By Jonathan Jones,

Reporter, FE Trustnet

Jupiter Global Equities I, HL Multi Manager Special Situations and McInroy & Wood Smaller Companies are among the global funds with the highest weighting to the UK as it prepares to exit the EU.

UK stocks currently represent just 6 per cent of the benchmark MSCI World index yet a significant number of global equities funds remain overweight.

Of the 265 funds in the IA Global and Global Equity Income sectors with any exposure to the UK (above 0.0 per cent), 42 have more than 20 per cent invested in the UK.

Last week, the UK government triggered Article 50 – the mechanism for exiting the EU – following last June’s referendum result, which saw 17.4m people vote to leave the bloc against 16.1m ‘Remainers’.

Performance of indices since EU referendum

 

Source: FE Analytics

Since the vote, the FTSE All Share index has rallied returning 18.21 per cent to investors despite an initial fall of more than 7 per cent in the first few days after the result.

However, the market has significantly lagged the broader MSCI World and the top performing S&P 500 index over the period, as the above graph shows.

This is largely due to the fall in sterling, as the UK currency tumbled in the aftermath of the vote and weakened further as uncertainty over a future trade agreement has increased. Sterling has remained low since the result and is currently down 16.03 per cent versus the US dollar.

Peter Hensman, global strategist and member of the real return team at Newton Investment Management, said in a previous article: “While the value of sterling has already fallen considerably, more belligerence in the early skirmishes between the two sides could well see the value of the pound slip further, especially if fears mount that no deal will be forthcoming.”

With this acting as a potential headwind to the prospects of the UK economy and more domestic-focused stocks, some of the large international companies could ultimately benefit from a further fall in sterling.

With uncertainty likely to remain as exit talks begin behind closed doors, below FE Trustnet looks at the funds with the highest exposure to the UK.

The global fund with the highest UK allocation overall is the £4m HC Charteris Global Macro run by Ian Williams and Terry Farrow, which has a 61.2 per cent weighting to the UK.


However, the largest fund on the list is FE Alpha Manager Nick Train’s £2.2bn Lindsell Train Global Equity, which has a 26.4 per cent weighting to UK stocks.

Funds in global sectors with 20 highest UK weightings

 

Source: FE Analytics

The five crown-rated fund has been a top quartile performer over three and five years despite its high weighting to the UK, returning 145.36 per cent since 2012.

It has struggled somewhat over one year and in a challenging 2016. It’s return of 23.83 per cent last year was in line with the sector average of 23.33 per cent, placing it in the third quartile of performers, as the UK market lagged the ever-steady US and rebounding emerging markets.

The concentrated fund, which typically holds between 20 and 35 stocks and has a low turnover rate, is 8.5 per cent invested in Unilever, 7.7 per cent in Diageo and 6 per cent in London Stock Exchange Group.

The second largest fund on the list is the £1.39bn HL Multi Manager Special Situations run by Lee Gardhouse and Roger Clark.

Despite residing in the IA Global sector, the fund is predominantly invested in UK stocks and is benchmarked against the FTSE All Share index.

As a result, the fund has a 43.8 per cent weighting to UK equities, eighth highest among global funds, and has an 8 per cent weighting to CF Woodford Equity Income, 7.1 per cent in Majedie UK Equity and 5.2 per cent in Marlborough UK Micro Cap Growth.


The other fund benchmarked against the FTSE All Share index despite having a global remit is Stonehage Fleming Global Equities II which has a 26.2 per cent weighting to the UK.

Alongside Lindsell Train, the only other five crown-rated fund run by an FE Alpha Manager on the list is Morgan Stanley Global Brands.

The £910m fund, run by William Lock, invests primarily in equity securities issued world-wide and includes Unilever, British American Tobacco and Reckitt Benckiser among its top 10 holdings.

The fund has also been a top quartile performer over three, five and 10 years although it also dipped last year following the rotation into value stocks and the rise of commodities and financial sectors.

Another five crown-rated fund on the list is the $201m Jupiter Global Equities I run by Ben Whitmore and Dermot Murphy, which has a 31.81 per cent weighting to the UK.

Performance of funds vs index over 5yrs

 

Source: FE Analytics

Elsewhere, the only other FE Alpha Manager include among the top 20 global funds with significant UK exposure is McInroy & Wood Smaller Companies managed by Tim Wood.

The one smaller companies fund on the list, it has been a top quartile performer over the past decade, returning 179.40 per cent.

However, the £84m fund has struggled more recently, sitting in the bottom quartile of the IA Global sector last year as sentiment to smaller companies waned in favour of more liquid large-caps.

Another notable name on the list is the Royal London GMAP Dynamic, overseen by head of multi-asset Trevor Greetham, which launched in March last year and has a 49.4 per cent weighting to the UK.

Despite the high allocation, the multi-asset fund is marginally underweight compared to its 50 per cent benchmark weighting, though the manager says he remains neutral on UK equities.

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