However, as a large-cap equity income manager, Morton admits that he is finding things “very tough at the moment”.
During the last three to six months, his £504m equity income fund has struggled alongside the rest of his peers in the sector, delivering returns of 0.1% and -0.0% against the IA UK equity income sector’s 0.6% and -0.2%, respectively. But on a five-year view, his fund has produced total returns of 79.2% versus the sector’s 66%.
Theresa May’s surprise snap election in June was not a move the Franklin Templeton UK equity team had anticipated, nor were they expecting the prime minister to come out the other side with a weaker majority.
The Tories’ slide from centre-right to centre-left in a bid to win back the public hit Morton’s utilities holdings hard, forcing him to significantly reduce his weighting.
“When there was going to be a general election, we were mainly anticipating it was going to be an increased Conservative majority. But we’ve ended up in a situation where the Conservative party are the ones who are bringing in a cap on energy bills.”
It is “even more difficult now to pretend you can forecast what will happen because the reality is there are so many things going on from a macro point of view”.
On the UK’s divorce from the European Union he still suspects “it won’t matter very much in five or 10 years’ time. It’ll matter as we’re going through it and it’ll feel pretty dreadful but whether it will actually be the decider for how the UK economy does and how companies do in 10 years’ time, I think there’s probably a lot more important issues than this”.
In the near-term, Morton is also concerned about the stability of the pound. If another general election is called, resulting in a Jeremy Corbyn-led Parliament, he can envision sterling getting hit very hard.
“What I’m really banking on is that the companies I invest in are capable of being able to adapt and change to whatever is thrown at them by not being a part of the single market,” he explained. “So, I’m hoping my investment in Relx, for example, is strong enough and the management is clever enough to be able to adapt that business model to whatever comes their way.”
“Whereas the British government don’t seem to have any idea about negotiating”, the large cap names in the FTSE 100 have operations all over the world, which requires them to navigate various trade arrangements on a daily basis, Morton argued.
“All of these companies have people who are very good at negotiating because that’s what they’ve got to do. They might be operating in a trade free tariff in Europe at the moment, but most of these companies are operating in parts of the world that have tariffs.”
