These Funds Are Betting on UK Stocks

Only a handful of other European indices have performed better than Morningstar's UK Index, so how are funds cashing in?

Sunniva Kolostyak 30 August, 2022 | 9:19AM
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The UK market has proved to be relatively stable over the past year. While some markets have plunged – Morningstar indices for Sweden, Poland and Hungary are amongst those down over 20% in 2022 – the Morningstar UK index has remained neutral with a 1.15% growth. Moreover, the UK Large Cap index is in fact up 8.74%.

Only a handful of other European indices have performed better. Norway and Portugal are two, and Turkey has had a runaway year due to raging inflation and a plummeting lira. The Morningstar Turkey index is up 42.73% year-to-date in GBP terms.

Overall though, equities have been a mixed bag of largely sour grapes this year. The question of TINA, or "There Is No Alternative [to stocks]" remains relevant as investors look away from equities to get better returns. But with low (ish) interest rates and high inflation, people are even hating on bonds, and finding a good escape is difficult.

As such, some funds are just rebalancing their equity exposure. We've looked at the ones upping their investments in UK stocks. Which are they, and what have they bought?

To find these funds, we have screened our database for UK-domiciled funds with at least 10% exposure to UK equities. We also excluded the funds with a pure UK focus. Plus, only funds that have reported their holdings over the past year have been included.

The equity market started plateauing towards the end of 2021, and these are some of the funds that increased their exposure to UK stocks in that period.

One of the funds with the biggest increase is Newton SRI for Charities Sterling Income. Over the past year, it has increased its exposure by 20%, and one of its biggest purchases was 350,000 stocks in recruitment company Hays (HAS) in Q4 2021.

However, so far this year, it has trimmed its portfolio slightly, by 1.17%. Since January, the fund has upped its holdings in one of its largest holdings though, in the form of AstraZeneca (AZN), but also sold off stocks in GSK (GSK) and Travis Perkins (TPK).

Fidelity Sustainable Global Equity Income is among the offerings with large exposures to UK stocks, with a plethora of changes taking place in the new year.

Several Fidelity funds have recently rebranded to become part of its sustainable range, and the fund has upped holdings in all the UK stocks it holds: Admiral (ADM), Unilever (ULVR), RELX (REL) and Informa (INF). From June to July 2021, its UK equity exposure jumped from 2.38% to 15.06%. As of July this year though, its UK weighting has decreased to 14.67% of the whole portfolio.

HL Multi-Manager Special Situations Trust, meanwhile, is invested in 428 stocks, 260 of them UK-based. Its most recent purchases include oil and gas company Jadestone Energy (JSE), of which it bought almost a million shares. Serco (SRP) is its biggest UK holding but the fund did sell 162,000 of its shares in the company this year. This fund is featured in both lists as its holdings are up both in the YTD and 1-year timeframe: 17.02% and 11.50%, respectively.

Also worth mentioning is SVM World Equity, which has steadily increased its exposure to UK stocks for the past year. Alpha Financial Markets Consulting (AFM) is its third biggest stock (5.03%), and several other UK stocks have allocations upwards of 3%.

The fund upped its holdings in Jadestone Energy and Savannah Energy (SAVE) in Q4 last year, and both have both become bigger constituents due to their growth this year despite no new stock purchases. This year, the fund has bought shares in Marks & Spencer (MKS) and Alpha Financial, and it has both bought and sold shares in Wincanton (WIN). Almost half of the fund’s portfolio is UK stocks, up by 11.28% in the past year.

Turning our eye to funds that have increased allocations in the year to date, Royal London is heavily represented. Four of its global multi asset portfolios made the list: dynamic, adventurous, growth and balanced. The growth fund has 20% in the Royal London UK Broad Equity Tilt fund but has reduced this slightly since last time it reported. Overall, though, its UK equity exposure is up 15.28% this year.

This is a trend in the 2022 table. Most of the funds that have increased exposure to the UK are allocation funds with a global focus, including the Royal London funds, TB Doherty Distribution B Acc (UK exposure up 17.88%) and Mazarin Cautious (9.75%). These funds (and alternatives investor Jupiter Merlin Real Return, whose UK exposure is up 11.03%) all invest in a series of open-ended funds.

We have to move down to 13th place to find a pure equity fund though. Premier Miton Global Sustainable Growth made its biggest purchase this year in Pearson (PSON) – buying almost 300,000 shares. It has also slightly increased its holdings in the London Stock Exchange Group (LSEG) and Unilever. In total, its exposure to UK stocks is 17.90%, which is about 7% higher than the start of the year, and 10% higher than a year ago.

It's worth noting that no funds with a Morningstar Analyst Rating made it into the top 10 for increased UK exposure. The first on the list was Neutral-rated JPM Natural Resources, in 18th place. It only holds three UK-listed companies: Rio Tinto (RIO), Anglo American (AAL), and Shell (SHEL). It has upped its holdings in the first two every quarter for the past year.

This year, it has bought and sold Shell shares. Overall, the three companies are 14.50% of the portfolio and its UK exposure – 7% higher than January but 6% less than 2021.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Sunniva Kolostyak

Sunniva Kolostyak  is data journalist for

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