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. Jupiter’s UK equity fund offerings encompass a broad range of strategies: large cap, mid cap and small cap funds; long/short funds; value-focused and growth-focused funds and an unlisted companies fund.
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 accommodative.
Chris Smith, Fund Manager of the Jupiter UK Growth Fund, said the UK equity market is the most interesting it has been in many years, with the economy a ‘coiled spring’ and equities the cheapest in 30 years relative to global shares.
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.
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 is overweight structural growth companies, and last year began adding domestic cyclical stocks such as housebuilders, financials and travel companies that had been hard hit by the pandemic and in some cases carried a Brexit discount.
Dan Nickols, Co-Head of Strategy, UK Small and Mid Caps, said his Jupiter UK Smaller Companies Fund has been unwinding an underweight position in domestic cyclicals that started after the 2016 Brexit vote. The fund also has benefitted from a rebound in initial public offerings this year, 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 whose valuations have slipped as the market rotated from growth to value stocks.
The fund managers agreed that environmental, social and governance (ESG) considerations form a fundamental part of their investment decisions and offer a clear advantage for active fund managers versus passive funds, where investments are inextricably tied to an index.
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.
Opinions differed among the portfolio managers on the proposals contained in the recent Hill Review around easing listing rules in the City of London. Richard Watts said reasonable allowances on dual class structures of shares and free-float requirements would encourage innovative companies to list in the UK rather than the US.
Richard Buxton said he could not disagree more, and that company directors should not have 20-times the voting rights of other investors. Equities should be equitable, and diluting listing standards under the guise of a global competition for IPOs would reduce protection for investors, he said.
There was agreement in the virtual audience about UK market opportunities, however. Polled on whether it was time to boost allocations to UK equities, 61% said yes; 23% were undecided and 16% said no.
Please note: 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 individuals mentioned 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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