Four of Jupiter’s most experienced fund managers came together for the Value of Active Minds series of debates, to discuss the outlook for UK equities in a post-Brexit and pandemic-recovering world.

The fog that has enveloped UK equities for several years is lifting, leaving a comparatively undervalued market offering a raft of potential opportunities for investors.
Britain’s `lite’ trade deal with Europe resolved an issue that caused many investors to take flight after the 2016 Brexit referendum. The efficacy of Covid 19 vaccines and their successful rollout in Britain promises to be a shot in the arm to the economy, which is forecast to rebound sharply in the second half of the year as pandemic lockdown measures are eased. Britons are sitting on a pile of savings — 150bln pounds — built up during lockdown, and central banks are providing support to the economy.

UK discount

Chris Smith, Fund Manager of the Jupiter UK Growth Fund, said the UK stock market is the most interesting it has been in many years, with the economy a “coiled spring’’ and equities the cheapest they have been in 30 years relative to global equities.

 

Richard Buxton, Head of UK Alpha Strategy, said he expects a strong, multi-year rebound in the economy with a surge in consumer spending accompanied by an uptick in government funding for policies such as the green energy transition. Corporate spending should rise also, helped by capital spending incentives included in the March budget, he said.

Portfolio changes

Where are the opportunities? Richard Watts, Co-Head of Strategy, UK Small and Mid Caps, said the Jupiter UK Mid Cap Fund that he manages last year began adding domestic cyclical stocks — companies focused on the UK market and whose businesses tend to be affected by economic cycles — such as housebuilders, financials and travel companies that had been hard hit by the pandemic.

 

Dan Nickols, Co-Head of Strategy, UK Small and Mid Caps, said his Jupiter UK Smaller Companies Fund has been also adding domestic cyclicals and has benefitted from a rebound in initial public offerings, or private companies selling shares on the stock market, which is another sign of the Improving appetite for UK assets, he said.

 

Chris Smith said he is looking beyond pubs, restaurants and airlines to a “second wave’’ of economic recovery beneficiaries whose values are depressed but earnings are unimpaired, along with quality growth companies — businesses that are expected to grow more quickly than the market – whose valuations have slipped.

ESG engagement

The fund managers agreed that environmental, social and governance (ESG) considerations form a fundamental part of their investment decisions. This is a way of measuring a company or industry’s social responsibility.

 

Dan Nickols said that the small and mid cap desk’s 400 company management meetings a year provide ample opportunities to raise ESG issues. One challenge for the desk is to communicate to investors the team’s high-level ESG engagement, he said.

 

There was also agreement in the virtual audience about UK market opportunities. Polled on whether it was time to boost holdings of UK equities, 61% said yes; 23% were undecided and 16% said no.

Please note: Past performance is no guide to the future. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the authors at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances.

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