Fund managers are piling into British stocks as the market’s best-ever start to a year stokes hopes of a turnaround following a prolonged run of poor performance.
The FTSE 100’s 5.9pc rise in the first three trading sessions of 2021 was the index’s best start to a year on record, building on a strong recent run for the British stock market. Over the past three months, the British market has made double that of the wider global stock market, as coronavirus vaccine breakthroughs have spurred a rally in ‘value’ stocks.
Some fund managers have been snapping up British funds and shares, betting on a resurgence for the domestic stock market, which has lagged the return of the MSCI World index – a barometer for global stocks – in eight of the past 10 years.
John Chatfeild-Roberts of Jupiter Asset Management slashed his £6.3bn Jupiter Merlin funds’ stake in gold on November’s vaccine breakthroughs, ploughing most of the money into the Man GLG Income fund, which invests in British stocks.
Chatfeild-Roberts built a stake worth £639m in the Man GLG fund according to Morningstar, swelling the fund’s size from £939m to £1.7bn.
“We have markedly increased our exposure to value managers, those investing in companies more geared to recovery notably in the UK,” he said. “Of the major global indices, the UK has been the least loved and potentially has the most to offer.”
William Dinning of Waverton is another backing British firms. The fund manager has around 12pc of his global fund invested with a home bias, almost triple the amount typically found in a global stock market tracker.
Since September, he has invested around £150m into British stocks such as pharmaceutical giant AstraZeneca, oil major Royal Dutch Shell and drinks firm Diageo.
“We have been moving our portfolio away from high-growth stocks and towards those we consider ‘core’ and ‘value’,” he said.
Dinning said Astra and Diageo were core stocks, generating reliable cash flows, while Shell was a value compnay, whose shares were cheap with the potential to rebound.
Using the price-to-earnings ratio – a measure often looked at by experts to determine value – Mr Dinning said the British market was 26pc cheaper than the rest of the world, making it an enticing option for contrarian investors.
Brexit had been a deciding factor in the “British discount”, he said, but should abate now a deal had been reached, encouraging foreign investors to buy back into Britain.
Thomas Becket of Punter Southall Wealth has also increased the firm’s weighting to British companies, moving from an “underweight” position to “neutral”.
He pointed to the reliance of British blue-chip stocks on overseas markets for the bulk of their earnings. “If, as we expect, 2021 is a year of potentially robust global economic recovery, the FTSE 100 may be one of the best ways to invest in that recovery,” he said.
Marcus Brookes of Schroders Personal Wealth suggested investors looking for stocks to benefit in a British market recovery should focus on companies that suffered the most during the lockdowns but survived. “These share prices are now below what we would consider to be fair value,” he said.
Brookes suggested energy, utility, retail, travel and lesiure stocks should perform well in an economic recovery as lockdown is lifted.