Many UK companies would be better off leaving the UK and listing abroad, according to Alec Cutler, manager of the Orbis Global Balanced fund.
The FE fundinfo Alpha manager said that the UK is filled with strong companies that are unappreciated by domestic investors.
He added: “If they listed anywhere else in the world their stocks would double. If it takes long enough and we own 30% of a company like Headlam, that's what we're going to tell them to do.
“It would be terrible for the UK though, so something has to change. Someone needs to blow a whistle and say, ‘let's actually look at our own companies again’.”
Headlam is a UK flooring company that Cutler added to the £128m portfolio during the volatility of Brexit that has since paid off all its debt and generated a 10% free cashflow yield.
“That in the US would not be a $250m company,” Cutler said. “That would be a $750m company, but it's fallen through everyone's fingers because if the Brits don't care, then it's only trolls under the bridge like me who’ll care.”
One of the main reasons that companies in the region have become so undervalued is because they have lost the support of UK investors.
Last year, UK investors removed £8.9bn from IA UK All Companies funds alone, with the sector not experiencing a month of positive net inflows since July 2021.
Cutler said: “Domestic UK names are the most attractive in the world because Brits have decided they don’t like them anymore and have decided they want to buy stocks and bonds from other places around the world.”
This was echoed by Alex Savvides, manager of the JOHCM UK Dynamic fund, who told Trustnet last week that declining interest from UK investors in their home market has driven equity prices well below their actual value.
Instead, the rising popularity of passive investing has driven investors’ exposure out of the UK and into other markets around the globe, predominantly the US, according to Cutler.
While UK equity funds suffered billions in outflows last year, Investment Association data shows that UK investors poured £11bn into index-tracking funds over the course of 2022.
Most of the leading global indices are heavily skewered towards the US, such as MSCI World, which has a 67.7% exposure to US equities. UK equities, on the other hand, only account for 4.4% of the same index.
Cutler said: “Twenty years ago, pension plans in the UK would have at least 50% in domestic equities but now it’s around 4% which is crazy. I haven’t seen a country that’s lower than that.
“It’s just weird that everyone is selling the British companies that they know well to buy banks in Silicon Valley and US tech companies that promise them the moon.”
Unless UK investors decide to start allocating to their home market again, Cutler said that he can only see the UK’s presence in the global market dwindling further.
He added: “Around four years ago, UK stocks started hitting our screens as being very attractive, and they've only gotten more attractive over time.
“Good companies just keep falling and falling and falling to the point where bottom feeders like us get attracted because investors have all decided that they suck.”
The Orbis Global Balanced fund was second-best performer in the IA Mixed Investment 40-85% Shares sector over the past decade, beating its peers with a total return of 132.4%.
Total return of fund vs sector over the past 10 years
Source: FE Analytics
It currently has an 11% weighting to the UK, which Cutler began adding to when the UK became attractively cheap around four years ago, but one could argue that declining sentiment began earlier than that. The IA UK All Companies sector was the worst selling group among UK investors every year between 2014 to 2018.