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Eight wealth managers' top UK equity fund picks

With Brexit giving wealth managers plenty to ponder about, eight readers reveal the UK equity funds they think are best placed to navigate the climate.

Jeremy Le Sueur

Managing director and investment director, 4 Shires Asset Management, Gillingham

‘If stock markets are likely to rally, smaller company funds should outperform the market, so the Rights and Issues investment trust fits the bill perfectly. Over almost all time periods over the past 10 years it has been the best performing UK small cap investment trust, and yet, despite this, it trades at a discount to net assets greater than 10% (a range of -10% to -18% over the past year).

‘The top 10 holdings are sensible, well-managed companies such as road equipment supplier and zinc galvanizer Hill and Smith, pump specialist Spirax Sarco and VP, the niche plant hire company. With ongoing charges at 0.59%, the fees are reasonable and approaching a bargain level. So pay 85p to 90p for £1 of assets and be impressed at your returns.’

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Jeremy Le Sueur

Managing director and investment director, 4 Shires Asset Management, Gillingham

‘If stock markets are likely to rally, smaller company funds should outperform the market, so the Rights and Issues investment trust fits the bill perfectly. Over almost all time periods over the past 10 years it has been the best performing UK small cap investment trust, and yet, despite this, it trades at a discount to net assets greater than 10% (a range of -10% to -18% over the past year).

‘The top 10 holdings are sensible, well-managed companies such as road equipment supplier and zinc galvanizer Hill and Smith, pump specialist Spirax Sarco and VP, the niche plant hire company. With ongoing charges at 0.59%, the fees are reasonable and approaching a bargain level. So pay 85p to 90p for £1 of assets and be impressed at your returns.’

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Richard Philbin

Chief investment officer, Wellian Investment Solutions, London

‘We are in a very tricky transition period. With Brexit negotiations ongoing but unknown, sterling pressures, dividend uncertainties, rising inflation and a split Bank of England when it comes to changing the direction of interest rates, it’s fairly safe to say the UK economy is heading toward a more difficult phase of the economic cycle. Is it the turn of value managers to take the lead, or will momentum continue?

‘With so many tricky questions out there to fathom, we would prefer to steer our UK allocation towards managers and funds that are broadly diversified in philosophy and approach; ones where, if income is a requirement, then it comes from a broad spread of instruments.

‘With a longer-term view, we prefer managers with a mid cap bias as they have greater potential to grow both the capital base as well as dividend payments. Consider the following: Miton UK Multi-Cap Income, Chelverton UK Income, Liontrust Special Situations or Lazard UK Omega.’

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James Menzies

Investment director, Greystone Wealth Management, Cheshire

‘With interest rates at record lows the price of traditional large cap dividend payers, so called bond proxies, has increased in line with fixed income markets. In order to maintain our 3.5% yield target while limiting our exposure to increasingly expensive blue chips, we pivoted the portfolio towards mid and small cap income funds such as Miton Multi-Cap Income and have recently purchased Chelverton UK Equity Income fund.

‘The Chelverton team will not hold FTSE 100 companies and so cannot “cheat” by buying a mega cap income stock in order to deliver their income mandate. This discipline drives a constant search for yield in the less well researched areas of the UK market, helping to diversify risk within our portfolio without sacrificing yield.

‘Where income is not a requirement, we have utilised flexible and long/short equity managers with a UK small and mid cap focus. Old Mutual Dynamic is a principle position in the Greystone balanced managed fund and we have recently added Polar UK Absolute Equity to our conservative managed and global growth funds. Both strategies can utilise short positions to take advantage of diverging stock valuations, helping to deliver alpha in different market conditions.’

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Darren Ripton

Head of investments, Standard Life Wealth, London

‘Standard Life Wealth has a very distinct approach in its management of our Target Return proposition. We aim to provide a consistent level of performance from this approach, and we look to identify managers who can provide a level of consistent return from their asset class of expertise (not an easy task in today’s environment).

‘One team who have delivered this consistency of return in a range of market environments is the JP Morgan UK Equity Core team led by James Illsley. This fund is designed to produce a measured amount of excess return by exploiting the inefficiencies within markets, specifically identifying opportunities utilising value, quality and momentum factors.

‘The fund is very benchmark aware (tracking error of approximately 1%), but has delivered incredibly consistent excess returns on a rolling three-year time frame, which makes it an ideal cornerstone investment within risk aware portfolios. This fund is all about grinding out returns year in year out, which is a highly commendable, while all too rare attribute.’

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James Penny

Senior investment manager, TAM Asset Management, London

‘The pound remains in the doldrums and the familiar Brexit cloud of uncertainty is continuing to force businesses to kick the proverbial spending can further down the road. And yet, in this paradoxical market, amongst the swaths of international bargain hunters, our UK indices grind inexorably higher against this backdrop of mounting 'known unknowns'.

‘To me, it appears that the price dispersion between our nation’s winners and losers continues to widen. In a world where value investing has almost passed into legend, it seems rational to own a manager who’s not die hard value or growth, but a manager looking for that elusive edge that’s all too often hiding in plain sight.

Ben Whitmore [Jupiter] is not afraid to raise cash levels when valuations look toppy, which in turn helps this fund protect on the downside. Regardless of style, we are in a market where a logical head might just be able to bag a few Brexit winners.’

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Tony Yarrow

Fund manager, Wise Funds, Chipping Norton

‘One fund that springs to mind is the Schroder UK midcap investment trust, managed by Andy Brough and Jean Roche. The two give investors a formidable combination of long experience, insight and in-depth forensic research.

‘Most investors appear to have given up on the UK economy, and are looking for returns overseas, or among the UK exporters. However, there is an equal chance that sterling will rise, and Bank of England governor Mark Carney’s recent announcement has caused the pound to jump – a windfall for importers, and in particular the unloved retail sector. The managers of the trust understand this well. They own a portfolio of shares in UK companies which are capable of withstanding the onwards march of the internet, or are set to benefit from it. The portfolio will have benefitted from the announcement by Carney, and the fund is available on an attractive 17% discount. It is a 3% holding in TB Wise Multi-Asset Growth.’

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James Crocker

Partner, Albert E Sharp, Stratford-upon-Avon

‘We added HSL to our model portfolios in late September 2016 and even after a punchy 27% return, we see more to come. Manager Neil Hermon is due to celebrate 15 years in charge of the fund in November and his first-rate track record provides a degree of reassurance.

‘Right now, the main attraction is the 14% discount to net asset value (NAV) which we see as overblown. The scope for discount narrowing and NAV appreciation gives the fund the potential to be amongst the top UK performers over the next year or so if the stars align.

‘Throw in a fund charge of just 0.44%, what’s not to like?’

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Jonathan Lau

Investment analyst, Anderston Strathern, Edinburgh

‘With Mifid II on the horizon, the opportunity set is likely to expand for truly fundamental UK equity small cap stock pickers. I like the consistency of the Invesco Perpetual approach and the low beta results of the Liontrust investment process.

‘However, I find the team at Amati Global Investors most impressive. They are happy to be a small boutique (for the time being) and therefore have an inherent edge in navigating illiquidity. The fund managers’ complementary backgrounds, market experience and focus on IT systems result in a unique combination.

This, together with an evolving IT system, helps them to differentiate from some of the larger, better-known names on national buy-lists. The Amati UK smaller companies fund is certainly one to watch.’

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