Fund-of-funds managers are increasingly abandoning UK equities in favour of Europe and Japan, as the outlook for the UK in election year remains unclear.
The FTSE All-Share index was one of the worst performing of the major indices in 2014, dragged down by its high exposure to mining and oil stocks, but managers are still not keen on bargain hunting.
Liontrust’s John Husselbee – who runs the white-label discretionary management service Wealth Solutions Service and the group’s Managed Portfolio Service – said he was underweight the UK.
Meanwhile Ryan Hughes, fund manager at Apollo Multi-Asset Management, said he recently sold out completely of his long-only UK equity exposure.
Mr Hughes explained that with too many market constituents reliant on the oil price and mindful of the election risks, he had instead brought in a long/short equity fund in the form of the Henderson UK Absolute Return fund run by Ben Wallace and Luke Newman.
Looking further afield for equity opportunities, Mr Hughes added he was keen on European and Japanese equities because he thought both looked favourable in valuation terms.
Japan now comprises 11 per cent of the balanced portfolio he runs, a position he has been building since the fourth quarter of 2014, with the holdings hedged in order to benefit from a further weakening in the yen.
“We have got the ability to trade a little bit in Japan, with the Nikkei index supported by the Bank of Japan,” he said. “We think the range sits with a floor at 17,000 and a ceiling of 18,000, so it is a market that we keep a close eye on.”
He added that if additional short-term exposure was required over and above his favoured positions of CC Japan Alpha from Coupland Cardiff and Legg Mason Japan Equity, he would employ an exchange-traded fund.
Also keen on Japan and Europe, Mr Husselbee said the former had the potential for earnings acceleration and he was increasingly investing in the latter, particularly through a combination of value and momentum strategies.
He said: “We are starting to think about Europe more and more – what has already done well and what will continue to do well.
“You start looking for these value opportunities then you can start to see momentum picking up. But I would rather make the mistake of being too early to a momentum trade than too late,” he said.
Mr Husselbee said he was invested in Alex Darwall’s Jupiter European fund and J O Hambro Continental Europe fund, run by Paul Wild.
“Basically we are looking for opportunities to exploit the tailwinds to the asset class – whichever it might be.”
