UK equities should be a fundamental part of any multi-asset portfolio, with JOHCM UK Dynamic, Unicorn Outstanding British Companies and Man GLG UK Income among the best options, according to IBOSS Asset Management’s Chris Metcalfe. 
The IBOSS investment director said that regardless of the outcome of ongoing Brexit negotiations, the asset class should remain a key part of any portfolio.
Recent volatility experienced by the continued uncertainty could provide investors with good entry points as the UK continues through the process of leaving the EU.
“Quite a few of the fund managers I have spoken to over the last year or 18 months have said if we get away from the political issues and the way people have voted et cetera, the volatility around UK assets – and the fact that many foreign buyers have allegedly been shunning the UK on a geographical allocation basis – actually does provide opportunities,” Metcalfe (pictured) said.
“At the end of the day the UK has got a fundamentally strong economy and – regardless of the Brexit outcome – I think will be absolutely fine.”
A bigger fear for the manager is the prospect of a Labour government under Jeremy Corbyn, but even this is just a small risk.
“Just as we have seen with the Republicans under Donald Trump, it is one thing what you say on the campaign trail, [but] when it comes to delivering it is not always as easy,” the manager added.
“People very often don’t deliver in reality what they say they are going to do – the things that win them votes.”
Performance of indices since EU referendum
Source: FE Analytics
Since the EU referendum in June 2016 the FTSE All Share has lagged the broader MSCI All Countries World index by 17.73 percentage points, as the above chart shows.
And while other markets such as the US soared last year, despite stocks already sitting on high valuations, the UK looks to be an area offering much better value, he said.
In fact, the UK has been a success for the firm’s managed portfolio service recently, with outperformance from active managers helping to mitigate the downside during the latest market correction.
The first fund backed by Metcalfe own is Man GLG UK Income run by FE Alpha Manager Henry Dixon, which rebounded last year after a poor 2016.
The five FE Crown-rated fund was the top performer in the IA UK Equity Income sector in 2017, returning 27.55 per cent – more than double the FTSE All Share – after a difficult 2016.
“You accept when you have managers who are high conviction – which is ultimately what you are paying for – that there are (hopefully) temporarily short periods where they might underperform,” Metcalfe said.
“But overall we invested with Henry because of his long-term track record and it was one of the best calls we have made in the last few years.
“Now that period of underperformance is lost even in the three-year numbers. It has just disappeared.”
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Indeed, the £380m fund has been the best performer in the sector over one and three years and is top quartile over five years.
And the good performance has continued into 2018 as the value-biased strategy has been one of the best performers in the recent sell-off. While it is down 4.12 per cent year to date this is a top quartile performance in the equity income sector.
Man GLG UK Income has a yield of 4.33 per cent and a clean ongoing charges figure (OCF) of 0.90 per cent.
Also in the portfolio is the five crown-rated JOHCM UK Dynamic fund run by FE Alpha Manager Alex Savvides, which is another “high conviction manager and that’s what we are looking for,” Metcalfe said.
The £934m fund also has a strong valuation-based approach, with the manager preferring to seek out for companies with long track records and leadership in their sector.
Savvides also focuses on dividend-paying stocks with the potential to smooth out possible losses – giving it a more defensive element.
The fund has been a top quartile performer in the IA UK All Companies sector over three and five years, beating the FTSE All Share benchmark in both 2016 and 2017 – one of only 11 funds in the sector to achieve the feat.
JOHCM UK Dynamic has been another that has insulated the IBOSS portfolio as volatility has picked up this year, with the fund down 4.67 per cent against the index’s 6 per cent fall – a top quartile return in the sector.
It has a yield of 3.42 per cent and an OCF of 0.81 per cent. It also has a performance fee of 15 per cent applied to any outperformance of the benchmark. In 2016, the fund paid out a performance fee of 0.56 per cent.
The final UK pick in the IBOSS portfolio is the £47.9m Unicorn Outstanding British Companies fund run by FE Alpha Manager Chris Hutchinson.
Unlike the two out-and-out value approaches above, the concentrated portfolio invests in established companies with a long-term track record of growth in earnings and dividends.
The fund defines outstanding companies as well-managed firms with predictable revenues, earnings and cash flows that are leaders in a growing market.
It has disappointed for the last two years, sitting in the bottom quartile of the IA UK All Companies sector in both 2016 and 2017.
Performance of fund vs sector and benchmark in 2017
Source: FE Analytics
IBOSS senior investment analyst Chris Rush, noted that much of this came in the second half of the year. “It had an awful back end of last year because it doesn’t hold any oil stocks,” he explained.
However, the fund’s exposure to quality businesses has been of great benefit year-to-date. As the market has sold off by 6 per cent, Unicorn Outstanding British Companies has only dropped 0.48 per cent.
Despite a difficult second half of 2017, the portfolio’s performance has now leapt into the sector’s top quartile over one year and is beating the FTSE All Share by 3.61 percentage points.
The fund has a yield of 1.48 per cent and an OCF of 0.85 per cent.