Valuations on UK domestic stocks have started to look more appealing at a time when most markets seem “benign and synchronised”, Invesco Perpetual chief investment officer Nick Mustoe has suggested.
Mr Mustoe, who runs the asset manager’s £531m Managed Growth fund as part of his role, said he was considering a greater emphasis on domestic names within the vehicle as part of a search for value.
He described the fund’s UK weighting as “just around benchmark”.
However, he added: “I’m getting more interested in the UK equity market, particularly in our funds focused on domestic stocks, which have done less well compared with international stocks post the EU referendum last year.
“Companies more focused on the UK economy have done pretty poorly. A lot of those valuations look more attractive.”
The Brexit vote initially bolstered the more internationally focused FTSE 100 index, although smaller names have also since rebounded.
Since June 23 2016, the FTSE 100 has gained 23 per cent versus an 18 per cent increase by the FTSE 250, data from FE Analytics shows.
This year, the fund – which invests in other Invesco Perpetual products – has maintained overweights to Europe and Asia, which Mr Mustoe added to in 2016.
At the end of July the Managed Growth product had an 18.8 per cent allocation to the company’s £2.5bn European Equity fund run by Jeffrey Taylor, with 12 per cent in William Lam’s £1.4bn Asian strategy.
Both vehicles have significantly outperformed their sector averages over the past year.
Mr Lam returned 37 per cent versus an average of 24 per cent for the IA Asia Pacific ex Japan sector, while Mr Taylor returned 31 per cent compared with a 25 per cent rise from his respective sector.
The only change carried out by Mr Mustoe in 2017 has been to take profits in regions such as the US, in order to bring cash levels to a three-year high. He added he was alive to common concerns over US valuations and where to find relative value.
“I always try to be fully invested, but [currently] have 4.5 per cent in cash,” the manager explained.
“That’s a higher position for me – I try to keep around the 1 or 2 per cent level. That is because markets have done really well. We have to be slightly more cautious than we have been.
“This portfolio is very equity-based, but it’s good to have a little bit of cash in case there’s a pullback.”
On a sector basis, the manager maintains a preference for some of the less popular sectors, including both banks and energy names.
“In the European fund there’s a position in the banking sector, which we think has upside,” he said.
“There’s also [exposure to] the oil sector. This is not saying oil is going back to $100 [a barrel], but saying big oil companies are doing the right things for shareholders, cutting costs and paying dividends.”
At the end of July Invesco Perpetual’s European Equity fund had a 30.9 per cent allocation to financials, with 11.9 per cent in oil and gas.
