The UK is arguably the developed market with the biggest question mark over its head at the moment. In fact, according to data from the Office for National Statistics, it is the only developed market to have seen slower growth between Q4 2016 and Q4 2017, its GDP estimate having been revised down from 1.5 per cent to 1.4 per cent. 
Thomas Wells, partner at Smith & Williamson Investment Management, said: “The hope that we will get a nice soft gentle Brexit is driving markets at the moment. UK inflation is unlikely to keep rising in this situation, because sterling is unlikely to fall by 20 per cent in the way we saw back in 2016.
“If we get a hard Brexit, the Monetary Policy Committee will struggle to tighten policy aggressively. Mortgage lending is at five-to-six times salary; a lot of our debt is also based on floating rate exposure, given that UK homeowners cannot fix their mortgages for very long compared to the likes of the US.
“So the UK is skewed, somewhat. It's difficult to see how it ends when even our leaders are unsure how Brexit negotiations will pan out.”
While this means it is tricky for investors to know how to position their UK exposure, many assets across the board are between 5 per cent and 10 per cent cheaper than they were at the start of 2018. This means it could be a good time to make the most of valuations.
Here, I look at four different ways investors can approach UK equities and which funds might present themselves as good options.
Unloved FTSE 250 stocks: F&C UK Mid-Cap
A lot of investors are nervous on holding FTSE 250 stocks, because they believe it compromises mostly of domestic-facing companies and is therefore more exposed to sterling fluctuations and economic uncertainty.
Performance of fund vs sector and index under Wilson
Source: FE Analytics
However, there are plenty of UK mid-caps which generate revenues from overseas and, despite being unloved, the FTSE 250 index has outperformed the FTSE 100 over the last one and three years.
That said, there has been dispersion in terms of performance among individual stocks in this area. As such, investors may wish to choose a manager who can pick out the oversold areas of the market and benefit from the attractive levels of growth that companies further down the cap spectrum can offer.
A prime example is Thomas Wilson, who heads up the F&C UK Mid Cap fund. Thomas has a highly-concentrated portfolio of between 25 and 35 stocks, which are chosen based on their ability to outperform regardless of where we are in the economic cycle.
The manager's strong stock-picking skills are reflected in the fund's performance – F&C UK Mid Cap has achieved top-quartile returns over one and three years, as well as over the last one, three and six months (Thomas has been at the fund's helm since 2015).
F&C UK Mid Cap has an ongoing charge of 0.81 per cent and yields 1.9 per cent.
Value tilt: Jupiter UK Special Situations
For value managers, it's about unearthing the gems that have been sold indiscriminately by the broader market. Therefore, this approach can often depend on individual stock turnaround stories as opposed to what is going on in the broader economy. And, so long as value traps are avoided, it reduces valuation risk.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Here we like Jupiter UK Special Situations, which has been managed by Ben Whitmore since 2006. Ben uses the concept that emotions – such as overconfidence and the human need to rely on something – unfairly skewed market behaviour. He uses this to his advantage in order to find companies which have strong franchises and healthy balance sheets, but have become unfashionable or have suffered a short-term blip.
As part of his behavioural finance approach, Ben opts not to meet with company management teams too often, as he believes they can downplay the negatives and exaggerate the positives.
It is worth noting that the value style of investing has been out of favour for quite some time and, despite this, Jupiter UK Special Situations has comfortably outperformed its average peer over three, five and 10 years. This means that, if value investing as a style comes back into favour, the fund could do very well indeed.
Jupiter UK Special Situations has an ongoing charge of 0.76 per cent and yields 2.4 per cent.
Global-facing large-caps: Threadneedle UK Extended Alpha
For those who are erring on the side of caution when it comes to UK exposure, a fund which invests in companies with overseas revenues might be a good option.
Performance of fund vs sector under Kinder
Source: FE Analytics
Threadneedle UK Extended Alpha, which is run by Chris Kinder, includes the likes of Royal Dutch Shell, GlaxoSmithKline and Unilever in its list of top 10 largest holdings.
The fund also benefits from Chris's ability to short stock which means that, if the opportunity set is thin on the ground, he can make money from betting against stocks as well as from ones which he thinks will do well. This means he has the ability to generate superior returns while also protecting on the downside during times of difficulty.
The fund's long positions are chosen adopting a value approach. The manager favours companies which have resilient long-term business models but are 'cheap' for the amount of growth they can offer. Conversely, his short positions are deemed to be expensive but which have deteriorating fundamentals.
Threadneedle UK Extended Alpha has an ongoing charge of 0.83 per cent and yields 2.2 per cent.
Income provider: Royal London UK Equity Income
Another form of protection is to opt for a portfolio which generates an income; this can either be pocketed regularly or reinvested to benefit from the power of compounding.
Here, investors may wish to consider Royal London UK Equity Income – which currently boasts a yield of 4.18 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It is headed up by Martin Cholwill, who forms macroeconomic views in order to drive the fund's overall framework, although sector weightings are driven by individual stock selection. Here, the manager focuses on cash flow generation because it suggests dividend sustainability, as well as providing any capital needed for growth.
The result is a relatively concentrated portfolio of 40 to 60 stocks which, over three, five and 10 years, has outperformed its average peer in the IA UK Equity Income sector.
Royal London UK Equity Income has an ongoing charge of 0.67 per cent.
Darius McDermott is managing director at FundCalibre. The views expressed above are his own and should not be taken as investment advice.