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‘Exciting opportunities’ for FTSE 250 UK mid-caps despite big Brexit hit

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Written by: Paloma Kubiak
01/07/2016
The FTSE 250 bore the brunt of the Brexit aftermath, closing 7% down last Friday. But two industry experts say despite this, UK mid-caps present exciting opportunities for the active investor.

UK mid-caps bore the brunt of the Brexit aftershock and the FTSE 250 saw its worst day since Black Monday.

This is because the FTSE 250 is largely made up of domestically-focused companies, generating the majority of its revenues from the UK, rather than overseas as with the FTSE 100.

Financials, housebuilders and construction companies were hardest hit with Taylor Wimpey plc closing nearly 28% down, Barratt Developments 23% down and Lloyds Banking Group ended nearly 20% down on Friday 24 June.

As expected, since then the index has been volatile as uncertainty fuelled the market.

But Mark Martin, head of UK equites at Neptune Investment Management, and Adrian Lowcock, head of investing at Axa Wealth, believe the current environment has created real opportunities for investors.

Martin says it will be tough for some parts of the UK market to perform well as housebuilders, construction companies and domestically-focused retail companies will struggle in the short to medium term.

But there are less cyclical companies in the index which have bright prospects, such as Telecom Plus, and Mears (a housing and social care provider) which are heavily UK exposed but are not based on discretionary spend.

He said: “I believe there is quite a large degree of dispersion in the market creating exciting opportunities for active fund managers to outperform.

“The FTSE 250 used to be heavily domestically focused but about 50% of the revenues are generated from outside of the UK and it’s those sorts of companies that are set to benefit from the weakened sterling.”

For Lowcock, with any change there is an opportunity and he says the weak pound will help boost earnings for some companies though the mid cap sector will remain under pressure until we really know the impact of Brexit and the extent of any slowdown in the UK economy.

He said: “It is a great place for stock pickers who can add value so while l like the active manager in this space, I think you also need a longer-term perspective at the moment. The large cap global companies are more likely to do well in the current climate as investors remain defensively positioned.

“I would still hold mid caps but just expect the sector as a whole to lag its large cap peers.”

 

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