In focus
[ 2020 OUTLOOK]
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US
UK
While the FTSE 100 has posted a
gain of 14.15 per cent year-to-date,
open-ended UK equity funds suffered
£2.9bn of outflows, thanks mainly to
sustained political uncertainty.
Given how far out of favour the
UK has fallen, Alex Wright of the
Fidelity Special Values trust says it
still stands out as cheap relative to
other global markets, meaning it
provides a plentiful opportunity set
for contrarian stock-picking.
“It is true that the fundamentals
are not great in the UK, but neither
are they in many other parts of the
world,” Wright says. “Importantly,
what the UK has which other markets
do not is a low starting valuation
and potential for a positive catalyst.
However, I do not want to claim that
I have some insight into when this
valuation gap will close.”
While Wright adds that it is hard
to ignore the effects of politics
and economics, he sees selective
TRUSTNET
opportunities in UK domestics and
currently owns positions in financial
and consumer businesses.
Trust pick: Schroder UK Mid Cap
Following the Conservative landslide
in the election, Callum Stokeld, analyst
at Kepler Partners, picks out Andrew
Brough’s Schroder UK Mid Cap trust.
“The risk of a hard-left government
may have been averted, and we will
likely start to have better clarity on
the shape of our future relationship
with the EU,” he says.
“This can help UK assets, and mid
caps may be in the sweet spot – able
to pick up any liquidity-driven rally if
investors return, with higher sensitivity
to a pick-up in the UK economy.
“Schroder UK Mid Cap has previously
displayed strong upside capture
and the portfolio looks attractively
positioned just now, while the discount
certainly has room to narrow.”
After another strong year from
the S&P 500, rising 25 per cent,
investors now face the question of
whether equities can keep it going.
Monks Investment Trust has 46.2 per
cent of its portfolio in the US. Client
services manager Jon Henry says this
is because the managers consider it
an economy “that is likely to cultivate
and foster growth companies”.
“However, in the last 12 to 18
months, we have seen a moderation
in our US exposure which has
largely been at the expense of more
domestically focused US names,” he
explains. “We still think the US is a
good investment opportunity, [but]
valuations now look more peaky.”
Trust pick: JP Morgan US
Smaller Companies
William Sobczak, analyst at Kepler,
highlights the “exceptional” long-
term track record of the JP Morgan US
Smaller Companies trust.
“The trust runs a low-beta portfolio
of high-quality companies and boasts
an exceptional track record of alpha
generation,” he says. “US small caps
have underperformed large caps
in the past two years, which we
think means there is a possibility
of a reversion in 2020. Added to the
greater alpha potential in the small
cap universe, this makes the trust
an interesting way to access the late-
cycle US market.”
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