James de Uphaugh: De-globalisation could benefit UK market

In an interview with Investment Week following the trust’s latest annual results, the manager said a combination of ESG concerns, the war in Ukraine and supply chain issues as a result of Covid has meant there is “a degree of nearshoring” as corporates look to de-risk.

“I think that the UK has certain companies which do benefit from that, because we as UK stock market have been quite pioneering, I think, in terms of our approach to ESG,” de Uphaugh said.

Nearshoring is when companies move their operations to a nearby or domestic country from a further-out source, something which has been a big topic since Covid lockdowns halted global supply chains.

Along with this macro-economic trend there are other factors that could benefit the domestic stock market, which has struggled in recent years. In fact, across the three years until 27 June, the S&P 500 in GBP returned 37.4% while the FTSE 100 returned just 9.2%, according to FE fundinfo data.

“If you think about what has been the achilles heel of the UK equity market, having too many energy companies, miners and banks, in the current context they are no strategically important businesses,” de Uphaugh said.

He added that although Covid and the supply chain crisis have benefited them, it is really the crisis in Ukraine which has “brought these sectors to the fore”.

His UK equity income trust has 11.2% in energy companies, 2.5% in utilities and 9.5% in financial services, according to the latest factsheet. The top ten is also full of companies in these spheres with Shell, Anglo American, Unilever among others filling the ranks.

Speaking specifically about Shell, which makes up 8.4% of the overall trust, the manager commented that if you look at the company “through the lens”, it might generate “approximately 35% of its market cap in cash over the next four years”.

Liontrust acquisition and ESG

The manager was previously part of Majedie, which was purchased by Liontrust at the beginning of April this year.

When asked if the new management company might lead to some changes, including the approach to ESG, de Uphaugh said that the current approach was “market leading as it stands”. However, he noted that “over time we will look to choose the best of both to improve it yet further”.

The manager’s view of ESG and his approach to implementing it on the trust is that the concept should not be static.

He gave the example of defence and spoke specifically about BAE systems, which sits in the trust’s top ten at 4.8% of total assets.

“It [BAE systems] provides products under government licence to government approved customers… if you think about those anti-tank weapons, which the Ukrainian Defence Force are using at the moment… or the javelins… they come from the likes of [these companies].

“The reality is without those products, and other products, we need to think about where Ukraine would be.”

The trust is sitting on a 5.8% discount, according to Morningstar data. 

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