Market News

UK Equity Income Funds Remain Popular Amid Brexit Fallout

October 11, 2016

A Brexit vote will have a positive impact on the global economy over the long term, according to Christopher Lees, senior fund manager at JO Hambro Global Select fund.

Speaking at the JO Hambro UK annual investor conference in London last week, Lees said that the fact of a Brexit vote forced questions to be answered, that had been previously been swept under the carpet. Lees said he has faith in Britain’s ability to deal with problems, and he believes solutions will be found.

“The European Union does not work, lots of people know it but they don’t admit it. Meanwhile, people forget that Swiss have their own referendum as well, and they have already said no to immigration. By law, the European Union and Switzerland have to reach an agreement early next year. So it’s not just Brexit, but there are other issues in the European Union as well,” Lees explained.

Brexit is a part of a wider anti-establishment political crisis Lees added. He said that he thinks there may be further revolutions to come: the environment of investing in globalisation over the last 15 years is probably changing, he added.

Sterling ‘Boost’ For FTSE 100 Companies

Sterling has fallen to a record lows since the Brexit ‘deadline’ was announced. This shows global investors’ concerns about the negative implications of Brexit. But this has also helped boost profits of many international companies listed in FTSE 100.

Around 75% of the revenues of companies listed on the FTSE 100 are generated in overseas markets, according to Schroders. Therefore the US dollars and Euros that these companies earned aboard are now worth more in Sterling terms. This has led to a succession of companies upgrading their earnings forecasts for currency alone, said Trevor Green, head of UK equities at Aviva Investors.

“What we lose on having a weaker currency, we gain in export pricing competitiveness,” said Green.

The FTSE 100 passed through a record high 7000 point mark last week. Besides the impact of a weak currency that lead to higher earnings among FTSE 100 companies, record low interest rates also tempted income hungry investors to buy stocks, pushing up prices, according to Schroder.

Green agreed, saying that as the search for yield continues around the world, the UK Stock Market has proved an attractive place for income seekers to invest.

It is perhaps not surprising, that investors have not been put off domestic stocks, despite these Brexit concerns. Readers on Morningstar.co.uk continue to show their interests on UK equity funds.

Investor Hunger for Income Stocks

Data from Morningstar showed that the Silver Rated UK equity income fund Woodford Equity Income continue to top the most popular ‘hit’ list in September on Morningstar.co.uk.

Morningstar analyst Peter Brunt said his confidence is growing in this fund.

“It is managed by one of the most talented fund managers in the equity income sector, and, after some initial teething problems, we are reassured to see a period of increased stability at Woodford Investment Management,” said Brunt. The fund has gained 5.3% over the year to date.

Another UK equity fund – the Gold Rated CF Lindsell Train UK Equity  – was third on September’s ‘hit’ list.

Competitive Prices And Long-Term Track Record

Morningstar analysts like this high-conviction fund, and point out that experienced manager Nick Train has a well-defined and consistently applied investment approach. In addition, the fund has a highly competitive fee structure. The fund’s total ongoing charge of 0.77% is significantly lower than that of the category median at 1.61%. The fund gained 14% year to date, and over the past five years has annualised returns of 18.5%.

The Bronze Rated Invesco Perpetual High Income fund is also another UK equity income fund that attracts readers’ attention. The fund benefits from an experienced manager in Mark Barnett, who is proving a steady hand despite his increased responsibilities and assets under management, said Brunt. Returns have been very strong since Mark Barnett took over the fund in March 2014. It is comfortably ahead of the UK Large-Cap Blend Equity Morningstar Category average and the FTSE All Share to the end of August 2016.

The rest of the funds that top the most popular ‘hit’ list in September are AXA Framlington Biotech fund, Legg Mason IF Japan Equityfund, Gold Rated BlackRock Gold and General fund and  Bronze Rated Fundsmith Equity.

Source: Morningstar. Karen Kwok | 11/10/2016