Investors turn towards UK mid-caps in hunt for income

Sheridan Admans, investment research manager at The Share Centre, examines The Share Centre’s ten top traded funds in June 2017.

Investors turn towards UK mid-caps in hunt for income

Old Mutual UK Mid-Cap is a new entry in our top-traded funds, suggesting that investors not only see this as an attractive segment of the UK market, but also have faith in fund manager Richard Watts’ stock picking ability. While he does pay consideration to economic conditions, the interest rate cycle and industry trends when constructing his portfolio, he is predominantly a manager that relies on companies’ fundamental data when seeking out growth businesses. Those companies have either the ability to grow earnings faster than the market average for an extended period, the scope to generate a positive earnings surprise or the potential to be re-priced relative to the market.

Otherwise there is little movement in our Top 10 compared to May. Income remains on the agenda of investors, with equity income funds featuring strongly. This could be a reflection of inflation expectation and the potential for a pickup in volatility ahead.

The Fundsmith Equity fund, from renowned fund manager Terry Smith, retains the top spot. As one of the industry’s most respected managers, and combined with the fund’s preference for defensive, resilient companies with advantages that are difficult to replicate, it’s unsurprising to see it feature on a regular basis within this context.

Next we see another star manager, Neil Woodford, again retaining second place with his CF Woodford Equity Income fund. This remains a perennial favourite among investors at The Share Centre, with Woodford’s more recent offering, the CF Woodford Income Focus fund, in fifth place.

Elsewhere in the list we see investors taking a global perspective, making specific regional and sector bets as highlighted by trades in Indian, European and Japanese funds. These regions are also favoured by The Share Centre’s fund managers responsible for the SF Funds of Funds.

And we continue to see signs that investors are no longer buying into the Trump reflation trade that dominated Q4 2016 and early Q1 2017. The fact that investors do not seem to be significantly allocating to the US may be a reflection of stretched US equity valuations.

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