Equity markets have performed well through 2019, spurred initially by the Fed pivot to an easier path for interest rates and latterly by the anticipated cyclical upturn in economic growth and corporate profits.
The UK market initially struggled on a relative basis, impeded by the uncertainty the ongoing Brexit debate created. However, over the last few months some clarity has started to emerge with the approval of Boris Johnson’s amended withdrawal bill, the “flextension” to the Brexit deadline, and the strong showing by the conservative party in election polling. This has resulted in the appreciation of sterling and the outperformance of UK equities from a domestic investor’s perspective.
These developments have induced a significant rotation in market leadership. Initially long duration ‘growth’ stocks performed better as bond yields were falling, whilst more recently ‘value’ stocks have rallied and those value stocks particularly exposed to the domestic economy given the strength in sterling.
These reversals tested the construction of our MISM UK Equity Income product, and specifically the balance of quality, growth and value factors. The fund consists of mandates managed by Henry Dixon (Man GLG), Richard Colwell (Threadneedle) and Ben Needham (Investec); the first two apply varying flavours of the value investment style while Ben Needham constructs a concentrated portfolio of very high-quality income paying companies. These varying styles can be seen in the return profile of their flagship open ended products, on which their mandates in the MISM UK Equity Income fund are based. Over the first three quarters Investec UK Equity Income outperformed the FTSE AllShare by 6.7%, whilst the Threadneedle UK Equity Income and Man GLG UK Income both lagged. This flipped through October and November, with Threadneedle and Man GLG funds both outperforming, by 2.3% and 4.2% respectively, this time the Investec fund marginally underperformed the benchmark.
We selected the underlying managers for their divergent investment approaches and the complementary return profiles these create. This combination has produced consistent alpha for the MISM UK Equity Income product through the gyrations seen so far in 2019.
Past performance is not a guide to future performance.
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