UK fund managers have talked up their funds by highlighting the emerging market exposure available to them from pharmaceuticals and consumer goods companies, seen by many as a safer way to cash in on the evolving middle classes of developing economies.
Given the plight of the UK economy since the financial crisis, it is of little surprise that they have distanced themselves from talking too much about more domestically focused areas.
There are a growing number of experts who believe this may be changing, however. With concerns over a slowdown in emerging markets mounting and a growing belief that the UK economy is in recovery mode, the old selling point seems to have gone out of the window.
With that in mind – and UK economic data looking more positive by the day – we ask the experts to highlight the pick of the funds that make their money from domestic exposure rather than overseas.
SVG UK Focus
FE Alpha Manager David Coombs, head of multi-asset investment at Rathbones, says he is aiming to increase his UK domestic exposure through the SVG UK Focus fund.
"We are happy with the UK economy, especially mid and small caps. The funds we are looking at are the SVG UK Focus fund and the Miton Multi Cap Income fund," Coombs said.
"The UK consumer has been on the floor for a while now, however the risks are looking less than they have done in the past," he added.
The Irish-domiciled SVG UK Focus fund was launched in August 2003 and is co-managed by Jamie Seaton and Adam Steiner.
According to FE Analytics, the fund is a top-quartile performer in the competitive IMA UK All Companies sector over one, three and five years, beating the FTSE All Share over all three of those time frames.
Over three years it has returned 66.41 per cent, outperforming the sector and its benchmark by more than 20 percentage points.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The fund is made up of just 24 holdings and therefore the managers are not afraid to take large individual stock bets. Aberdeen Asset Management and the Daily Mail group make up 7.1 per cent and 6.6 per cent of the portfolio, respectively.
SVG UK Focus has an annual management charge of 0.8 per cent and requires a minimum investment of £1,000.
CF Miton UK Multi Cap Income
Coombs says he has also been looking at the CF Miton UK Multi Cap Income fund, which is headed up by the experienced management team of Gervais Williams and Martin Turner.
As the fund’s name suggests, Williams and Turner look for companies across the market-cap spectrum. Stocks listed on the FTSE AIM, FTSE 250 and FTSE Small Cap indices make up the majority of the £92m fund, with FTSE 100 companies only accounting for 10 per cent of the portfolio.
Some of its largest individual holdings include legal firm Abbey Protection, the financial services company Fairpoint group and insurer Charles Taylor.
CF Miton UK Multi Cap Income was launched in October 2011.
Over that time, it boasts top quartile returns of 53.78 per cent while the average portfolio in the IMA UK Equity Income sector and the FTSE All Share have returned 35.22 per cent and 30.65 per cent, respectively.
The fund has also been top over one year and the last six months.
It has a yield of 4.08 per cent, requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.77 per cent.
PFS Chelverton UK Equity Income
Gordon Smith, fund analyst at Kilik & Co, pinpoints the PFS Chelverton UK Equity Income fund for investors who want a high domestic exposure.
"In order to get more domestic exposure, you will want to go down the market cap. One of our favoured funds is the PFS Chelverton UK Equity Income fund," Smith said.
"There are a number of key attractions for this fund, such as UK smaller companies growth prospects, undemanding valuations, a supportive macro environment for income stocks, the management team’s scope to invest in mid cap stocks where it is deemed appropriate and an asset base that is sized to enable good portfolio management flexibility."
"A further benefit is the diversification away from traditional UK equity income funds," he added.
The five crown-rated PFS Chelverton UK Equity Income fund is run by David Taylor and David Horner, and as Smith points out is nimble compared with its competitors as it has just £90.3m worth of assets under management.
Our data shows that the fund is the second-best performing fund in the IMA UK Equity Income sector over five years with returns of 109.49 per cent, more than doubling the returns of the All Share in the process.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
It also boasts the second highest returns over one and three years, plus it is currently yielding 4.5 per cent.
PFS Chelverton UK Equity Income has an OCF of 1.88 per cent and requires a minimum investment of £1,000.
Investec UK Special Situations
Sheridan Admans, investment research manager at The Share Centre, is a fan of Alastair Mundy’s Investec Special Situations fund for investors looking to diversify away from UK mega cap portfolios.
"His approach assumes that the market generally over-reacts to negative information, allowing him to take positions in companies on valuations he considers cheap," Admans said.
"Mundy’s approach means the fund may have periods of underperformance when compared with a more mainstream UK equity fund; however Alastair has proven that his value-driven strategy pays off."
"The fund is suitable for an investor looking to provide additional UK exposure and would complement a mainstream blue chip UK equity fund," he added.
Mundy, who takes a contrarian approach to investing, has managed the £893m Investec Special Situations since August 2002.
The fund is a top-quartile performer in the IMA UK All Companies sector over five and 10 years and has also beaten its benchmark – the FTSE All Share – by more than 20 percentage points over both of those periods.
The fund has an OCF of 1.6 per cent and requires a minimum investment of £1,000.
Standard Life UK Equity Income Unconstrained
Admans says that investors should turn to the Standard Life UK Equity Income Unconstrained fund if they want a UK portfolio focused on domestic stocks because the manager, Thomas Moore, is not afraid to invest across the market cap.
"This UK Equity Income fund offers diversification across the entire market cap spectrum. Investors will see familiar top holdings; however the manager has the flexibility to search the depths of the FTSE, to ensure the portfolio does not merely follow the herd," he said.
Thomas Moore has only been managing the fund since January 2009. Since then it has returned 144.84 per cent versus the 84.4 per cent of the FTSE All Share.
Performance of fund vs sector and index since Jan 2009
Source: FE Analytics
Moore says that the UK dividend market is overly concentrated on just a few mega cap stocks and that investors who are looking for a growing dividend are better off dipping into the lower end of the market.
He holds 47 per cent of his £157m fund in FTSE 250 stocks. The fund currently has a yield of 3.59 per cent.
Standard Life UK Equity Income Unconstrained has an OCF of 1.91 per cent and requires a minimum investment of £1,000.
