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Domestic affairs

The Adviser Fund Index questionnaire for April shows that the panellists believe the UK is going to do relatively better than the US and Japan over the next 12 months.

Forty per cent of respondents to the survey see Japan as the area that is likely to do worst economically over that period, with 30 per cent picking the US. None of the respondents picked the UK as likely to perform worst.

Despite this, the AFI panel chose to eject nine UK equity-orientated funds from the three AFI benchmark indices.

The move is not wholly surprising considering the short and medium-term outlook, says Allenbridge Group head of retail fund research Jonathan Wallis.

He says: “We believe that the pound is going to remain relatively weak. In the current climate, we would rather have stock-specific portfolios as there are likely to be better opportunities outside the UK.”

While the panellists are relative positive over the prospects for the UK economy over the next 12 months, this does not extent to longer timeframes. Forty per cent of respondents say the UK will be the worst-performing sector over the next three years.

However, Chartwell Investment Management investment research manager James Davies says pessimism in the market is unlikely to worry fund managers who specialise in looking for value stocks. He says: “I think if you are looking at a three-year time horizon, it is difficult to make that kind of judgement. I think the value sector could do better than people expect it to.”

Davies says investors and IFAs should be wary of making judgements based on the recent market problems.

He says: “You have to be careful that you do not end up reacting to the last six months’ performance data. There is still an enormous amount of latent value in the UK market although there are bound to be a few value traps around.”

Wallis says the weakness of the pound makes it preferable to have exposure to foreign currencies in a portfolio but this can be achieved through investing in UK-based companies with a global presence.

Beckett Financial Services investment manager Sam Sibley says the appeal of overseas markets was growing before the onset of the current volatility.

Sibley says: “A few years ago, there were not really any overseas equity income funds. This has now changed and funds such as the Newton global higher-income fund are now a core holding for us. It is a combination of opportunities presenting themselves overseas and the tough situation facing the UK.”

What is apparent is that whether in fund selection or individual stock picks, the emphasis is going to remain on selectivity.

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