Infrastructure and technology are the two main sectors Polar Capital’s George Godber and Georgina Hamilton have found unique value opportunities in the UK market. 
The managers of the Polar Capital UK Value Opportunities fund, which launched a year ago, said while the UK remains unloved by many investors there are still some attractive opportunities.
From a purely valuation perspective, the pair said domestic earners have become particularly attractive in the wake of the Brexit referendum.
“If we look at the top down, domestic is generally cheaper but you have a tougher outlook in the UK,” Godber (pictured) said.
“We can’t change the tough outlook in the UK – the consumer is in a tough spot and no one can actually tell you with certainty what is going to happen in regards to Brexit – but the funding position in the market, with some notable exceptions, is okay.”
He said investors are getting a near-30 per cent discount in the FTSE 100 for domestic shares compared to their international peers, making them attractive on a value basis.
Conversely, international earners are generally more expensive but the outlook is much more favourable as global growth is picking up.
“You have a pretty unique situation compared to the last seven years where US, Asian and European growth is all rising and the funding position is okay,” Godber said.
As such, the fund is split evenly between more domestically-focused companies and those deriving income from abroad – mitigating some of the UK domestic risk while finding those stocks that offer the best value.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The £595m fund run by the pair has started strongly, making a total return of 14.3 per cent since launch in January 2017 – a top quartile performance in the IA UK All Companies sector and more than triple the returns that of the FTSE All Share.
Below, the managers highlight the sectors they have been most interested in since taking the helm of their new fund.
The first is infrastructure companies, which despite a strong bias to the UK domestic landscape offer good value opportunities, the pair said.
“Despite the slightly bleak outlook we really are finding exciting stuff in the UK [since the EU referendum]and we are finding it in infrastructure,” Hamilton said.
One example is FTSE 250 company Hill & Smith, which makes temporary crash barriers found on major motorways. 
Hamilton (pictured) noted: “There is a big, ringfenced spend on roads in the UK and the great thing about infrastructure spending, which the coalition government put in place, is that it is now done by third-party boards at arm’s length from the government.
“So, if there is a change in government you would have to pass legislation to stop that roads budget being spent. That is quite nice to have that visibility of spending in those areas.”
While the stock has lost 1.55 per cent since the fund launched, it has returned 28.4 per cent following the EU referendum in June 2016.
Performance of stocks since EU referendum
Source: FE Analytics
Another company the pair are keen on in the infrastructure space is small-cap firm Costain, a specialist provider of smart motorway systems.
The stock is up by 20.57 per cent since the launch of the fund and has returned 30.61 per cent since the Brexit vote – broadly in-line with Hill & Smith.
“If anyone has been deeply irritated by being told to be going at 40 miles per hour [mph] when they are doing 4mph then you can thank Costain for that,” Hamilton said.
Investors have been particularly worried about the industry since Carillion went bust last month, but the managers said this has created opportunities rather than problems.
“Yes, Carillion is there and rather obviously has been a very bad investment for shareholders but we think that is a stock-specific event,” she said.
“The Carillion balance sheet was nearly as geared as a bank if you looked at the assets versus the equity once you had split out the pension and joint ventures and everything else.
The manager added: “It was quite a unique situation. A lot of the other companies in UK infrastructure sector don’t have that balance sheet or cashflow backdrop and, if anything, should over the medium-term benefit from one of their key competitors coming out of the market.”
The other area that the pair have found attractive value opportunities is the technology sector, although they said colleague Ben Rogoff, manager of the five FE Crown-rated Polar Capital Global Technology fund, would be “horrified” by their use of the term.
“Brexit is one thing but actually the impact of disruption from companies like Amazon and other tech goliaths has definitely accelerated in 2016 and 2017 and we think that is possibly even more important than things like Brexit,” Hamilton said.
While there are fewer disruptors in the UK market those there are tend to be much cheaper than their US counterparts, making them relative-value candidates.
“There is no way we should be owning these shares – they are disruptors. It is just because they are listed in the UK and are domestic that we have got an amazing opportunity to own things like this, at the moment,” she noted.
“This is really where Brexit and the negative sentiment to the UK is throwing up some brilliant opportunities we would never normally own.”
One example is online comparison site Gocompare.com Group, she said: “Even in a tough consumer outlook people still want to switch their car insurance and if anything they may want to switch it more.
“It had a bid recently which we thought dramatically undervalued the company but it does just show that at some point people will step in and take these assets if they continue to be this cheap in the UK.”
Performance of stocks since fund launch
Source: FE Analytics
Their last pick is On The Beach Group, which co-manager Godber said is a classic disruptor taking on larger players such as FTSE 250 firm Thomas Cook and FTSE 100 stock TUI.
“Every pound they generate in sales they invest 50p straight back into marketing and they are just going continually at [more established payers],” he said.
“Online travel agents have gone from 0 per cent of the market to 10 per cent and rising and they exhibit that classic disruptor mentality and are moving into Scandinavia and out the rest of Europe.
“It has performed extremely well and the shares have been a fabulous friend to the fund. I think had the business model been listed on the Nasdaq it would never have been at an attractive multiple for us.”