The manager of the £59m UK Equity Income fund believes value-oriented equity income funds that flourished with the post-Trump-fuelled rotation could be in for a nasty surprise in the coming months.
While high valuations led to a shift away from defensive companies over the summer, she said the “Trump excitement seems to be petering out a little bit”.
Frikkee holds little to no value names in her fund, favouring defensive quality holdings.
At this stage, she said there was “a lot of hope priced into markets” following President Trump’s promises, including committing $1tn to infrastructure spending and implementing more business-friendly policies.
Frikkee thinks UK stock markets are creating a false equivalency between the domestic financials recovery and that of the US.
She said: “Interest rates in the US have gone up so banks should see something in their numbers. But in the UK, they haven’t. There’s a lot of hope priced in.
“I look at company’s profitability and for return on equity over 10% and the UK banks are a long way off that. They need a lot of interest rate hikes in order to have decent profitability.”
Yet she saw no sign that rates would be rising in the UK “anytime soon”.
Further, the boon felt in the UK construction and mining sectors based on expectations that Trump will “reflate the world” are also similarly misguided, in her view.
“Typically, the market moves first before the actual money comes, such as orders to build bridges or roads.
“But the execution or implementation of Trump’s promises might be less easy than the market thought. Nothing much has happened yet.”
