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Darius McDermott: Tapping into a Brexit deal bounce

11 November 2019

FundCalibre's Darius McDermott highlights four funds that could benefit from Boris Johnson's new Brexit deal should he secure victory in the forthcoming general election.

By Darius McDermott,


We’re on the road to a Christmas election for the first time in almost a century, with the public going to the polls on 12 December – an event Boris Johnson hopes is the final hurdle to finally getting his Brexit deal over the line.

The prime minister had hoped to have an exit sorted by 31 October. However, like other Brexit deadlines before, it came and went and Johnson – possibly regretting his previous statement that he’d rather be dead in a ditch first – was forced to request a delay until 31 January 2020. The EU later confirmed the “flextension”.

So we have another few weeks of uncertainty ahead of us before a deal – hopefully in the new year. If one is then reached it is likely to result in a stronger rally in the pound. Domestic UK stocks, particularly cyclical stocks such as banks and housebuilders are likely to do better, as are small and medium-sized UK companies.

On the other hand, larger UK companies, which receive most of their sales from outside the UK are more likely to struggle as sterling rises. However, this may only be short-lived too: UK equities have been unloved for a long time now and any clarity over the future of the UK economy may well mean that investors return to our shores picking up bargains along the way.

With this in mind, here are four funds we believe will feel the initial benefits of a potential deal.


The multi-cap options

JOHCM UK Dynamic and Liontrust Special Situations are two funds which look to spread their exposure across companies of different sizes.

JOHCM UK Dynamic fund has been managed by Alex Savvides since its launch in 2008 and currently has 33 per cent and 9.5 per cent (as at 30 September) in FTSE 250 and FTSE Small-Caps companies respectively. Alex has a contrarian approach, specifically targeting companies going through a period of change – so the fund will look and behave differently to the market. The portfolio typically holds between 35 and 50 different companies and currently has over a quarter (25.4 per cent) of its holdings in financials. The fund, which does have a performance fee, has returned 51.1 per cent in the five years to 23 October.


The Liontrust Special Situations fund’s investment philosophy is based around finding companies with intangible strengths. These are often difficult to quantify but are very meaningful in protecting a company’s competitive position: every stock in the portfolio must have; intellectual property, a strong distribution network or recurring revenues. In addition to its multi-cap nature, the fund is also well-diversified from a sector perspective, but it does have a reasonable overweight towards the industrial sector (26.8 per cent vs 11.7 per cent for the FTSE All-Share). The fund currently has 47.5 per cent in FTSE 100 stocks and 27 per cent in FTSE 250 stocks. It has returned 74.7 per cent to investors in the past five years to 23 October.


The value route

The undervalued nature of the UK market in the past three years has been well-documented, with figures in the region of 20-30 per cent often touted due to poor sentiment. This could change quickly if any type of deal is agreed. Two well-known exponents of value investing which can tap into these trends are the Schroder Recovery and Investec UK Special Situations fund.

Nick Kirrage and Kevin Murphy will look for unloved stocks trading on low prices within the Schroder Recovery fund. To find these, the team will perform in-depth analysis on a company’s financial statement, looking to answer several key questions ranging from how a company turns profits into cash, to how it manages its debt levels. They do not meet company management preferring to focus purely on fundamentals and stock valuation. The fund is currently overweight financials (30.6 per cent vs 22.4 per cent for its FTSE All Share benchmark (as at 31 August) and has energy provider BP (5.4 per cent) as its largest individual holding. The fund has returned 33.3 per cent to investors in the five years to 31 August.


Investec UK Special Situations fund manager Alistair Mundy has often described his investment style as “looking in other people’s dustbins for ideas”. His approach tends to be especially successful during turning points in investor sentiment, when investment fashions change. His fund currently has almost half of its holdings in industrials (28.7 per cent) and financials (20.4 per cent). The fund has returned 38.5 per cent to investors in the five years to 23 October.


Darius McDermott is managing director at FundCalibre. The views expressed above are his own and should not be taken as investment advice.

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