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Down but not out: UK funds jump as Brexit clouds lift


Down but not out: UK funds jump as Brexit clouds lift

 

Fund managers focused on UK stocks have enjoyed a rare week at the top of the performance charts, as the Brexit fears that have long clouded the outlook for the UK stock market showed signs of lifting.

As our exclusive Accumulator data table shows, the FTSE 100 was the best performing major global stock market in pound terms this week, barring Brazil’s presidential election-fuelled rally.

But the FTSE 100’s 1.6% rise in our table only tells part of the story. Our Accumulator data includes the impact of last Friday’s tech-fuelled sell-off: measure the FTSE 100’s performance from Monday’s open until today and the rise is a much stronger 3%.

All the more impressive when you consider that this rally was achieved against the backdrop of a strengthening pound: the yen, dollar and euro were down 1.4%, 1.2% and 1.1% against sterling respectively. A rally in the pound tends to hold back the FTSE 100, whose stocks rely on overseas markets for around three quarters of their earnings.

The FTSE 100 also had to contend with a slump in the oil price weighing on index heavyweights Shell (RDSb) BP (BP). Brent crude was down nearly 11% in pound terms, a fall amplifed by the drop in the dollar in which it is priced.

It’s a measure of how much Brexit fears have weighed on the UK stock market that just a small dose of optimism about negotiations over the departure from the European Union produced the jump it did.

Investors latched on to two pieces of news: first, the publication of a letter, later downplayed, from Brexit secretary Dominic Raab saying he expected a deal to be in place by 21 November. Then a report in The Times that the UK was close to striking an agreement to allow financial services access to EU markets.

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For an even better gauge of the strength of the stock market reaction, look to the FTSE 250 index, up 5.5% from Monday’s open. 

The ‘mid-cap’ index has a more domestic focus than the FTSE 100, with its stocks reliant on the UK economy for around half their revenues.

So it’s no surprise that UK mid cap funds have enjoyed a good week. Over the five days to yesterday, Franklin UK Mid Cap is up 4.7%, AXA Framlington UK Mid Cap has risen 4.5% and Royal London UK Mid Cap Growth has rallied 4.3%.

These are just the sort of funds investors have been selling since the Brexit vote: this week’s figures from the Investment Association showed net outflows from UK funds since the summer of 2016 had now hit £10.5 billion.

Fund managers with a broader UK remit who have focused on stocks with exposure to the domestic economy also had a good week. 

Steve Davies has been adding more exposure to international markets, but his Jupiter UK Growth fund still has a defiantly domestic slant, with stocks like Dixons Carphone (DC) and WH Smith (SMWH) in his top 10. The fund was up 4.7% over the five days to yesterday.

Then there’s Neil Woodford, who has famously bet big on the UK economy performing better than expected, and  this week hailed the Budget as providing vindication of his stance.

He’s had a decent week, though it’s notable that the fund he runs for national financial advice provider St James’s Place has been his best performer, up 3.8%, while his flagship Woodford Equity Income fund is up 2%.

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Shorn of the smaller biotechnology stocks that feature in the Equity Income fund, St James’s Place High Income , which is focused on FTSE 100 and FTSE 250 companies, has a portfolio even more geared towards UK domestic earnings.



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