Investment Trusts That Have Flourished Since the Brexit Vote
Over the last few years, the protracted machinations of the Brexit process have caused significant dismay among the British public – and prompted wariness among investors.
Following the EU referendum the shares of UK companies, especially those smaller in size, fell dramatically in value, as investors became fearful of the impact of Brexit on them.
‘UK equities are extremely unloved with their valuations 30% cheaper than their global peers’
Indeed, compared to similar shares traded globally, UK equities are extremely unloved with their valuations 30% cheaper than their global peers.
But while UK economic growth has slowed, GDP has continued to rise since the referendum. At the same time, several UK companies retain significant value due to factors other than Brexit, such as world-leading technology or simply having built a strong domestic business, that can weather external storms.
Here, we discuss the trusts that have stayed the course in spite of Brexit – and discuss some of the opportunities they have uncovered over the last three years.
The managers of IPU are fundamental stock pickers, with a preference for finding high quality businesses that are growing revenues and profits, and like to buy them at what they see is the ‘right’ valuation.
‘a preference for finding high quality businesses that are growing revenues and profits’
While they do not take a view on the outcome of Brexit, they do believe that UK stocks in general have been overly punished since the UK’s referendum.
A diverse range of companies have fitted the bill in recent years. They include 4imprint, a supplier of promotional merchandise, which is rapidly taking market share in a very fragmented segment. In the last few years the company has grown its sales by double-digits and profit has risen comparably.
Another opportunity found in recent years is Softcat, which supplies software to SMEs. It evolved its product to meet clients’ new needs, as competitors failed to keep up, which has seen the company take market share and grow profits as a result.
Altogether, the team’s clarity when it comes to UK opportunities has paid off. Over seven of the last nine calendar years it has outperformed its peers on a NAV basis and has continued this record into 2019.
Aberforth Smaller Companies invests through an unambiguous value approach, which looks for companies that are clearly undervalued by the market.
The basic philosophy is that buying good companies when they are cheap will be rewarded in the long term, so the management team looks to find attractive businesses that have fallen out of favour.
‘buying good companies when they are cheap will be rewarded in the long term’
This means uncovering why a company is cheap and deciding whether it is justified: is it being punished for previous management mistakes? Or could the company be out of favour because of wider trends?
Brexit means the trust has had a plethora of opportunities come its way in the last three years, especially in domestically-focused companies and retailers that have been punished by overall negative sentiment towards the sector.
An example of an overly-punished retailer in the team’s eyes is Dunelm Group, which appointed a new CEO in February 2018 as part of a campaign to improve its business. Since then, the company has reported good results and has seen its share price rise, against the grain of the wider retail environment.
Majedie Investments offers a slightly different perspective on the UK to the two other trusts listed here. This is because it invests in six sub-funds on behalf of investors, with the aim of achieving both capital growth and income.
Over the last few years, MAJE has chosen to be overweight to the UK, despite the much-discussed uncertainty over Brexit. What this allocation reflects is the trust’s confidence in the stock selections made by the managers of the sub-funds.
The trust invests in two UK funds, the Majedie UK Equity Fund and the Majedie UK Income Fund, run by a highly-experienced team of analysts at active management boutique Majedie Asset Management – giving investors access to two UK investment propositions for the price of one.
‘giving investors access to two UK investment propositions for the price of one’
Both funds look at the attributes of specific companies when choosing what in the UK to invest in, with a view that the UK’s economy remains relatively resilient.
The Majedie UK Equity Fund focuses on finding investments that are well-run, with a strong market positioning and offering self-help or those in industries experiencing structural tailwinds – although, there is crossover between the two types.
Tesco is an example of a company that has conducted ‘self help’, with the previously poorly-run company now boasting a strong balance sheet and the stock seeing serious momentum behind it.
The Majedie UK Income Fund, meanwhile, seeks to produce a premium yield ahead of inflation by looking to growing businesses that the market is overlooking.
Travis Perkins is just such a company, with subsidiaries damaging performance in the past – the decisions that drove this have now been reversed.
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