Only one thing to do with uncertainty: embrace it
‘Knowledge is an unending adventure at the edge of uncertainty’ – Jacob Bronowski
If you asked me at the start of the year, a few months ago or even right now which is the most opportunistic global stock market out there, I would have replied / do reply…the UK.
Now this is no permanent home bias playing out here. I have spent almost all my investment management career managing portfolios where the biggest slug of investments are in any region but the UK. However you have to go where the opportunities are and today – due to the highly publicised Brexit political angst – the opportunity is in the UK.
I believe we can see this at three levels. The first is undoubtedly centred in the local economic data which remains highly variable but not terrible. For every consumer or business confidence survey scuttling around a multi-year low, the improvement of wage data trends – hugely important for any economy where consumption is close to two-thirds of economic output – are far more ignored. This latter aspect is deeply indicative of the second theme I see within the UK financial markets: global fund managers deeply dislike them. Last week’s most famous and regular survey of global fund managers responsible for many hundreds of billions of assets placed the UK at the bottom of the allocation charts (versus historical norms). I think such a view is desperately misplaced because it fails to give any credence to the third element attractive element of the UK market: the great scope for stock selection.
Last Thursday exhibits this best. As one cabinet resignation hit after another, a number of more domestic focused sectors – such as the banks, housebuilders and retail stocks – struggled but someone dropping in from Mars for the day would wonder what the fuss was all about as the leading UK share index – the FTSE-100 – ended slightly up on the day. This, of course, reflected the benefit for the swathe of export-focused stocks that a lower value of the Pound gives. Now if you think about some of the issues – and fear – implied in the above paragraph, anything which gives a semblance of hope and faith that the Brexit angst and uncertainty may be worked through is going to provide some scope for these moves to be reversed – and much more. Certainly our experience over the last year in the Global Dynamic Opportunities Fund is that the UK market has offered plenty of opportunities as evidenced by our recent profitable trade in homewares retailer Dunelm as well as historic profitable positions in names such as easyJet, Kingfisher, DixonsCarphone and others. We anticipate more of these profitable trades to come in upcoming months.
In short this – aligned with a pragmatic view that a no deal and deeply messy Brexit period for the UK economy is not going to occur – is why we retain an overweight position in UK equities and do not expect this to change for the foreseeable future.
Chris Bailey, Chief Investment Officer
Daniel Stewart & Co
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