Majedie UK Equity - opportunity in uncertainty

Dominic Rowles | Thu 30 March 2017

The links in this article will take you to Hargreaves Lansdown’s main website for more information. Please be aware that if you wish to join any of the benefits in your company Plan you must return to this website to apply.

• Value-focused investment approach returns to favour in 2016
• The fund performed well over the past year and outperformed its benchmark by 5.4%
• We expect the fund to perform well over the long term and it retains its place on our Wealth 150

Our View

The Majedie UK Equity Fund is managed by a team of four and each manager brings their own unique yet complimentary style to the portfolio. This collaborative approach means investors benefit from a fresh flow of new ideas, which keep the fund balanced and diversified.

The managers are contrarian in their approach to stock picking. They seek what they believe to be robust businesses that have been overlooked and undervalued by other investors. This approach has been successful over the long term, although it can lead to shorter-term periods of underperformance. The team has occasionally been early with their views and in repositioning the portfolio, yet investors have ultimately been rewarded for their patience – as was the case last year.

The fund’s contrarian approach, combined with its bias towards higher-risk small and medium-sized companies, makes it different to others in the sector. The fund currently features on the Wealth 150 list of our favourite funds across the major sectors.

Performance

Long-term performance has been excellent. An investment of £10,000 made 10 years ago would now be worth £27,000*, although past performance is not a guide to future returns.

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2017

The managers’ focus on out-of-favour areas of the market, such as mining and financials, led to a period of weaker performance in 2015. This approach came to fruition in 2016, however, and an improvement in investor sentiment towards these sectors led to a strong period of performance.

Standout performers included Barclays and RBS, and mining company Anglo American. The share prices of these companies also benefitted from changes to their senior management teams and this exemplifies the managers’ approach of seeking companies with a willingness to turn around their fortunes.

Limited exposure to the poorly-performing tobacco and pharmaceuticals sectors also boosted performance.

Fund Positioning

The team currently see opportunities in food retailers and they have added to existing investments in Sainsburys and WM Morrison. Some larger supermarkets have struggled in recent years due to increased competition from discount supermarkets; however, there is evidence to suggest rising inflation is putting more pressure on the discounters to raise their prices. This could put larger retailers in a stronger position to take back market share.

The team also remain positive on the prospects for the mining and energy sectors, which could benefit from cost cutting, rising commodity prices and increasing demand. They believe other investors have underappreciated the improving outlook and have increased exposure to companies including oil & gas explorer Royal Dutch Shell and Canadian gold miner Barrick Gold.

Elsewhere, pharmaceutical companies GlaxoSmithKline and AstraZeneca, telecoms giant Vodafone, and KPN, the Dutch mobile operator were sold from the portfolio.

Outlook

The managers are concerned about the uncertainty surrounding global politics. The threat of global trade being obstructed by protectionist US trade policies or an anti-European party winning one of the continent’s many elections in 2017 could make market conditions volatile.

Article 50 has now been triggered and the managers expect Europe to be neither helpful nor swift during the UK’s withdrawal from the EU. Consequentially, they see risks for the UK economy as business investment plans are delayed.

Uncertainty can make investors nervous and lead to market volatility. However, periods of share price weakness can offer opportunity to invest in companies with good longer-term prospects at more attractive prices. As contrarian investors, the managers look to invest in companies that are trading on lower share prices because they have been overlooked by investors. They could therefore be well placed to use any market volatility to their advantage.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.