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The UK funds set to benefit from the Budget

Written by: Michelle McGrade, chief investment officer at TD Direct Investing
Following the Budget, we’ve picked out two of the Chancellor’s announcements that we believe could boost financial markets and two UK equity funds that could reap the benefits.


The UK is growing faster than all our big industrialised peers. Economic growth is forecast to be 2.4% this year, a decent figure which under normal circumstances should feed through to support the markets. Our growth outlook looks even better when compared to Japan’s rate of 0.8%, the eurozone at 1.6% and even the usually spirited US economy forecasted to grow at 2.1% by year-end.

Tax thresholds

Nearly 30 million people will pay less tax according to the chancellor. This would follow from a rise in the personal tax allowance from £10,800 to £11,000 and moving the 40% tax band from £42,385 to £43,000. Many of us should therefore receive more money to spend on homeware, cars, electronics and other consumer durables, all of which should stimulate the economy further and shares too.

Fund picks

Old Mutual UK Alpha fund

Since George Osborne’s first budget in 2010, Old Mutual UK Alpha has generated an impressive return of 92%, far exceeding the 67% return from the FTSE All Share. While we don’t expect the same level of performance here for the coming five years, we still believe the fund is well positioned to benefit from a growing economy. More than half the current portfolio is invested in the FTSE’s cyclical sectors of financials and consumer discretionary. Examples of the fund’s current consumer stocks include the clothing store Next and theme park owner Merlin Entertainments.

Fund objective – Invests in a portfolio of UK equities and aims to add value over the investment cycle through a concentrated, high-conviction portfolio invested primarily in large-cap companies. In performance terms it aims to outperform the FTSE All Share Index.

Why buy this fund – In constructing the portfolio, the manager considers the economic environment in which companies operate in addition to the prospects for individual sectors and companies. He aims to generate positive returns over the long-term through the identification of stocks that he believes will rise in value by at least 10-20% for the ensuing three years. Moreover, he remains true to his philosophy even in the face of shorter-term adversity and this helps build conviction in his ability as he has a record of generating strong long-term returns, although investors should be prepared for relative performance variability over shorter-term periods.

Fund Manager – Richard Buxton joined Old Mutual Global Investors from Schroders in June 2013. He has however managed this fund since December 2009, having previously managed it as a segregated mandate on behalf of the group. Buxton has applied the same process and philosophy for over ten years first at Schroders and this fund continues to be managed in the same fashion.

Franklin UK Mid Cap fund

This fund’s flexibility to invest across the market-cap spectrum means it can take advantage of small- and mid-cap stocks exhibiting greater growth potential in contrast to some of its larger-cap peers. Franklin’s smaller-cap stocks have fuelled the fund’s performance over the last five years leading to a spectacular gain of 148%, more than double the return of the FTSE All Share. Some of the fund’s current crop of mid-cap stocks include Bovis Homes and The Restaurant Group, both of which could be well placed to benefit from an upturn in discretionary spending by the UK consumer bestowed upon them by the budget.

Fund objective – Aims to achieve capital growth from investment in medium-sized UK companies. In practice, the manager expects to exceed the capital growth achieved by the FTSE Mid 250 ex IT Index. The portfolio is reasonably concentrated and will typically contain between 40 and 50 stocks.

Why buy this fund – The fund invests in companies the manager deems to be of high quality and trading at attractive valuations. The manager looks for companies that are operating in markets that have long-term growth opportunities, have an earnings stream that has been mispriced by the market and those where the current share price is depressed and offers some resiliance to further weakness.

Fund Manager – Paul Spencer re-joined Rensburg Fund Management (now Franklin) in 2006. He is an experienced manager who adopts a flexible approach which has seen the fund do well through the market cycle.

Michelle McGrade is chief investment officer at TD Direct Investing

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