The multi-asset range McQuaker (pictured) runs, which recently adopted a manager of managers structure with lower fees, is currently underweight UK equities, even though he drew comparisons between the country’s equities and his overweight in Asia and emerging markets.
He told Portfolio Adviser there is a valuation argument in favour of emerging markets due to their bear market between 2013 and 2016, meaning multiples are lower and corporate profits aren’t as extended as they are in developed markets, particularly the US.
A similar case could be made for the UK, he says, yet he remains underweight. “I don’t think we can say with enough certainty that we know how the Brexit thing is going to play out, to have conviction for UK equities, and really want to take a bold view there.”
A withdrawal agreement might not be enough to restore certainty to investors, even though it is the outcome most likely to reassure markets, McQuaker said. “The other options are just swapping one form of uncertainty for another, whether it’s referendum, general election, or extension and more chat. None of those things create much in the way of certainty. It might create hope in some people’s minds, but not certainty.
He continued: “My suspicion is that if we saw the withdrawal agreement signed up to, then of course markets would have a period of relief, but I think it would be quite short lived, because the next stage of the negotiations would follow hot on the heels and that’s where things perhaps become, if this is believable or not, more difficult still.”
His comments contrast with many UK equity managers, who have argued their funds are due to outperform once MPs vote in favour of a Brexit deal.
This month, Invesco manager Mark Barnett said he thought UK equities were reaching a point of change following an “extended period of irrational market pricing.”