With the Brexit deadline now extended to 31 October, uncertainty surrounding the future UK relationship with the EU continues to dog the domestic equity market.
However, there are several high-profile global equity managers taking big punts on the domestic market, according to research by FE Trustnet.
And it’s not hard to see why.
The FTSE All Share has underperformed its international peers during that time, with its 30.24 per cent gain paling next to the 55.17 per cent sterling return for the developed markets-focused MSCI World index.
Performance of indices since EU referendum
Source: FE Analytics
Yet, some managers have held that UK equities are among the most undervalued of global markets broadly and could present an attractive entry point for investors.
The large number of internationally-focused businesses making up the FTSE 100 blue-chip index as well as the strong dividend culture and high yields on offer make it an appealing market.
As such, while representing just a small portion of the commonly used MSCI World benchmark at 5.84 per cent, a number of global equity managers hold a significant weighting in UK equities.
Below, FE Trustnet considers which of the top-ranked FE Alpha Managers – representing the top 10 per cent of UK retail-facing managers – from the IA Global and IA Global Equity Income sectors currently have the largest UK equity positions in their portfolios, according to their latest fund factsheets.
Top of our list is the £7.5bn Lindsell Train Global Equity fund overseen by FE Alpha Managers Michael Lindsell and Nick Train.
The five FE Crown-rated fund, which is also co-managed by James Bullock, has a 28 per cent exposure to UK equities including top holding Unilever, which makes up 8.2 per cent of the portfolio.
The managers have a high conviction approach, typically hold stocks for the longer term and have a low turnover. In common with all the funds on our list, Lindsell and Train run a concentrated portfolio of companies resulting in big UK weightings relative to the index.
Among other top UK names in the portfolio are alcoholic drinks company Diageo and London Stock Exchange Group. Outside of the top 10, UK names such as investment platform Hargreaves Lansdown and publishers RELX and Pearson can be found.
Since the referendum, Lindsell Train Global Equity has made a total return of 94.57 per cent against a rise of 50.15 per cent for its average IA Global peer.
The next fund on our list is the £586.7m Veritas Global Equity Income fund, managed by FE Alpha Manager Andrew Headley. He was recently joined by colleague Ian Clark.
It too has a more than a quarter of its portfolio invested in UK equities, representing 25.6 per cent of the portfolio. Its top holdings include life insurer Prudential and consumer goods company Unilever.
Source: FE Trustnet
Veritas Global Equity Income has made a total return of 37.69 per cent since the Brexit vote, slightly underperforming the average IA Global Equity Income peer’s 38.6 per cent gain.
Additionally, the $3.9bn Veritas Global Focus fund – also managed by Headley and FE Alpha Manager Charles Richardson – has a significant UK equities exposure at 15.6 per cent. It is up by 53.83 per cent over the same period.
Several Morgan Stanley funds follow – Morgan Stanley Global Brands Equity Income, Morg Stnly Global Brands and Morg Stnly Global Quality – with around one-fifth of each portfolio held in UK equities.
The FE Alpha Manager linking them all is William Lock, who heads the firm’s London-based international equity team and is lead manager on the team-managed funds, which have a quality focus.
The £8m Morgan Stanley Global Brands Equity Income holds 22.47 per cent of the portfolio in UK-listed stocks, while £1.1bn Morg Stnly Global Brands has 22.35 per cent invested in UK names and 19.23 per cent of the $2bn Morg Stnly Global Quality is held there. It should be noted that the much larger $12.6bn, offshore sister fund of Morg Stnly Global Brands also has 22.5 per cent of its portfolio held in UK stocks.
Since 23 June 2016, Morgan Stanley Global Brands is up by 63.65 per cent, while Morg Stnly Global Quality has made 57.63 per cent. Having launched at the end of August 2016, Morgan Stanley Global Brands Equity Income is up by 35.52 per cent.
Next up is FE Alpha Manager Terry Smith who follows a similar style to Lindsell Train and has at least 17 per cent of his two global equity funds invested domestically.
The five FE Crown-rated, £17bn Fundsmith Equity fund has 17.4 per cent held in UK stocks, while the £233.5m Fundsmith Sustainable Equity fund – which will not invest in a range of industries that don’t meet its ethical screen – holds 17.2 per cent in UK stocks.
Top UK names in the flagship Fundsmith Equity fund include consumer goods company Reckitt Benckiser and Intercontinental Hotels Group. Meanwhile, Fundsmith Sustainable Equity holds Reckitt Benckiser and enterprise software company Sage.
Fundsmith Equity is a popular choice among many investors given Smith’s long track record in the industry and has made a total return of 75.61 per cent since the referendum.
Performance of fund vs sector & benchmark since EU referendum
Source: FE Analytics
Launched in November 2017, Fundsmith Sustainable Equity has made 22.28 per cent.
Just over 17 per cent of the £210.8m Edentree Amity International fund – overseen by Robin Hepworth – is invested in UK equities. The fund, which has a sustainable mandate and is also managed by David Osfield and Thomas Fitzgerald, counts UK drug maker GlaxoSmithKline in its top holdings and has made a return of 39.48 per cent since the vote.
Rounding out the list are Sanlam Global High Quality – managed by Pieter Fourie – and Stephen Yiu’s LF Blue Whale Growth, with 16 per cent and 13 per cent respectively invested in UK equities.
Sanlam Global High Quality has returned 56.99 per cent since the referendum, while LF Blue Whale Growth has made 33.75 per cent after launching in September 2017.