Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Majedie Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
For global funds that had an overweight allocation to the UK, the last few years have been a somewhat bleak time. Save for brief moments of clarity amongst the Brexit-related political chaos, the UK market has largely underperformed the rest of the world, particularly the US, despite sitting at a comparatively attractive valuation.
However, in the last year or so, the tide has begun to turn. Starting with the decisive election of Boris Johnson in a Conservative landslide, alongside a relatively clear Brexit outcome, the UK has become politically significantly more stable. And since vaccine rollouts began to slowly gather pace in the closing weeks of 2020, hopes for a reopening of the global economy have turned markets away from the US technology giants and towards previously unloved market segments, such as UK stocks.
With this shift, managers who had held firm in their belief that the UK market was due a resurgence have been rewarded. And with the outlook for the UK remaining strong due to several factors, the story is far from over for the best companies the UK has to offer.
A steady perspective
One fund that has maintained a positive view on the UK is Majedie Investments (MAJE), which we have recently published new research on. The board believed that there were UK companies of similar quality to those available in other markets, but at considerably better valuations. As a result, the trust, which has a global mandate, has been overweight to the UK for much of the last seven years.
The trust invests in several sub-mandates, run by managers from Majedie Asset Management. Two of these underlying mandates – the MAM UK Equity Fund and the Tortoise fund – are responsible for most of the UK allocation.
The UK Equity Fund is invested across the market-cap spectrum, remaining relatively style-agnostic, reflecting the team’s focus on stock selection rather than a top-down allocation. This flexibility has enabled them to benefit from a flourishing UK growth market in 2020, followed by a resurgence in UK value in 2021. Meanwhile, the Tortoise Fund has focused on value opportunities in the UK for the last few years, although it has a global mandate and has found opportunities elsewhere too.
Good news, positive outlook
Nonetheless, both teams agree that the case for the UK remains compelling. The current market rally has been driven in large part by the UK’s status as a world-leader in terms of its vaccine rollout, a tailwind that will not subside for several months yet. Further, a relatively straightforward Brexit outcome and the election of a clear majority Conservative parliament has removed much of the uncertainty that has plagued the UK over the last five years.
A further catalyst for the UK market was outlined by MAM’s chief investment officer, James de Uphaugh, in a presentation he gave earlier this year. He explained that the combination of Brexit and the pandemic meant that UK companies had been subject to significantly more stress than at other points in the cycle. As a result, the companies that have flourished and made operational improvements amid this turmoil are by their nature the strongest and highest quality names, arguably more resilient than some of their less-tested international peers. At the same time, he said that UK companies remain on attractive valuations.
While the MAJE board has maintained its overweight to the UK, the fund still has a considerable allocation elsewhere. In particular, the board chose to remove a US fund from the list of sub-mandates. Instead, it chose to allocate additional capital to the MAM International Equity fund, which has a limited allocation to the US, and the MAM Global Equity fund. Both began 2020 with marked overweight allocations to technology stocks, before rotating out of these as the year progressed, reflecting the managers’ focus on stock specifics rather than style. These allocations proved shrewd in the early 2021 technology sell-off.
Both funds have had a strong twelve months, due in part to decisive stock selection and remaining flexible in the face of a rapidly-evolving market environment. For example, the Global Equity fund benefited significantly from a position in Barrick Gold in the first half of 2020, when gold prices were bolstered by the significant monetary injection by the world’s central banks in response to the pandemic. The manager initially invested due to the renewed discipline of the company’s management, a reflection of his preference for companies with strong fundamentals. He subsequently reduced that allocation as global confidence grew in the latter half of the year.
As each of these case studies show, the underlying funds behind Majedie Investments are unique in their own ways. Their managers are unafraid to take decisive views that go against the grain, selecting what they believe are the best stocks regardless of style or sector. Combined together, these funds offer investors a distinctive approach to global equity investing, differentiating the trust from its competition. Combined with MAJE’s track record of delivering sector-beating income, this approach provides investors with an attractive and unusual blend.
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