The best and worst UK wallets since Brexit

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Since the UK voted to leave the EU six years ago today, travel has been volatile. Although the vote took place in 2016, an agreement was not reached until the end of 2020, when the UK finally left the union on New Year’s Eve that year.

Getting to this point has been fraught with political and social pitfalls, culminating in Boris Johnson’s promise to ‘do Brexit’ as prime minister. Outside Parliament, labor and property shortages, immigration issues and conflict around Northern Ireland have taken their toll on the UK economy and stock market.

As a result, the UK has fallen out of favor with foreign investors, particularly since the vote, with many global managers opting to stay away from UK uncertainty and invest elsewhere.

In effect, Investment Week found that the average IA Global fund is now more than a third less invested in the UK than it was before Brexit, with the former being a major reason for the downgrade.

Average global funds hold a third less in the UK than before Brexit

In this study, we looked at the major UK stock markets, both open and closed, to see which portfolios have generated the highest returns since June 23, 2016 and which have struggled.

On the open side, Thesis Stonehage Fleming AIM was the top performer, with 163.6% over that defined period, according to data from FE Analytics.

The £115.3m fund is managed by Paul Mumford and Nick Burchett and invests primarily in the UK alternative investment market (AIM), as well as some small cap positions.

The small-cap end is the UK’s main base for growth stocks, polarized from the FTSE 100 space which is dominated by banks, financials and energy stocks, the most value-oriented assets .

Due to this composition, the main sector allocation of the Thesis fund is information technology (21.6%), followed by healthcare (20%), atypical for a British fund at first sight.

There were two Liontrust funds in the top 10 – Liontrust UK Micro Cap and Liontrust UK Smaller Companies – which achieved 127.8% and 93.5% respectively.

Both are led by the same five-strong investment team: Anthony Cross, Julian Fosh, Matthew Tonge, Victoria Stevens and Alex Wedge. Cross and Fosh have been managing the funds since March 2016, practically since Brexit has been around.

Both funds are managed through the house economic benefit process, seeking stocks with at least one of three intangibles: intellectual property, strong distribution or recurring business.

There were four IA UK All Companies funds on the list: MI Chelverton UK Equity Growth, Slater Recovery, Slater Artorius and VT Sorbus Vector.

No IA UK Equity Income funds made the top 10, although this was not the case on the closed side.

Here, three IT UK Equity Income funds feature in the top 10: Law Debenture Corporation, Allianz Merchants Trust and Shires Income.

Merchants Trust director Simon Gergel recently said Investment Week that it was taking a bullish stance on energy and mining companies to play on rising inflation and interest rates. Gergel has managed the portfolio since 2006, but the trust itself has been around since 1889.

But just like the open space, small business trusts made up the majority of top performers, with Harwood Capital Oryx International Growth leading the way.

The £179.2million trust has achieved 120% since Brexit. It is headed by Christopher Mills who takes a “buy and hold” approach, preferring low turnover in small cap and unlisted stocks. He is supported by co-manager Nicholas Mills.

Other well-known and outperforming small cap trusts include JPMorgan UK Smaller Companies investment trust, BlackRock Throgmorton trust, BlackRock Smaller Companies and River and Mercantile UK Micro Cap.

While a small cap strategy has worked for these portfolios, it hasn’t always done so as IT UK Smaller Companies have also dominated the worst performing trusts since Brexit.

Chelverton Growth Trust was the worst overall, losing 53.5%.

Managers David Horner and David Taylor invest in companies they believe are “at a point of change” in AIM with a market capitalization of up to £50m.

Other trusts that lagged were JPMorgan Mid Cap, Troy Income & Growth trust and Baillie Gifford UK Growth trust.

Finally, going back to the open side, the worst performer was the Jupiter UK Growth fund, down 18.4%.

Manager Chris Smith took over the fund in mid-2020 during the peak of Covid when the lockdowns were very depressive on UK equity returns. The fund invests primarily in the large cap segment (61%), investing in major UK brands such as RELX, AstraZeneca, Unilever and Bae Systems.

It was one of seven IA UK All Companies funds in this group, two of which were Invesco funds, Invesco UK Equity High Income (UK) and Invesco UK Equity Income (UK).

Both Invesco funds are managed by Ciaran Mallon and James Goldstone, who also took over management in 2020. The pair apply a similar process to both funds, looking for highly liquid companies that are undervalued and can generate both income and yields.

There was only one IA UK Smaller Companies fund at this end of the study, Sarasin UK Thematic Smaller Companies, which lost 9.3% and two IA UK Equity Income funds; SPDR S&P UK Dividend Aristocrats UCITS ETF and ASI UK Income Unconstrained Equity.

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