Coutts & Co, the private banker to Queen Elizabeth II, is famed for its ornate London offices and white-glove service to wealthy clients.
But it isn’t above some bargain-hunting, and these days the bank is looking for value close to home: the stocks of mid-size British companies.
A digital display board inside Coutts private bank on The Strand in London.
The reason is Brexit.
With UK Prime Minister Boris Johnson passing his withdrawal agreement this week and the country poised to depart the European Union at the end of the month, uncertainty surrounding the process is beginning to clear.
That has made Coutts bullish on smaller manufacturers and other UK firms that may benefit from rising confidence in the domestic economy.
“Ever since the referendum passed in June 2016, UK equities have been unloved, undervalued, and under-owned,” said Monique Wong, senior portfolio manager at the 328-year-old bank. “But a big part of the Brexit story is now behind us and mid-caps have been trading at a bigger discount than large caps.”
Even so, there’s still work ahead as officials in London and Brussels hash out a new trade agreement.
Johnson’s insistence on completing a deal by the end of the year may stoke market risk if months tick by with little progress.
Should sterling fall as a result, that could favour the stocks of larger UK companies that rely on exports for growth.
Still, many investors have seen enough to make them buyers of smaller British equities, Wong said.
Last year, the FTSE 250 index of mostly mid-size companies returned 29%, outpacing the 17% advance of the large-cap FTSE 100.
Between June 24, 2016 – the day after the Brexit vote – and the end of 2018, it was the export-heavy FTSE 100 that outperformed.
Coutts, a unit of Royal Bank of Scotland Group Plc, is also high on another unloved group: stocks from mainland Europe.
As fears of a US recession dissipate and the trade war between Washington and Beijing eases, demand may rise for European manufactured goods and lift equities, especially in Germany, Wong said. “Europe is a leveraged play on the global economic cycle,” she said.
Coutts’s growth strategy portfolio, which combines stocks, bonds and alternative assets, returned 17% last year.
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