Fund manager Seneca predicts the UK is headed for a recession in 2020

UK fund manager Seneca Investment Managers, which has around £500m of assets under management, is predicting that the UK will be hit by a recession in 2020.

Seneca, which controversially made the move to eliminate exposure to US equities in its Global Income & Growth Trust last year, has said it is already starting to reduce exposure to UK equities as the UK moves through the "recovery" phase of the economic cycle.

The multi-asset fund house has a strategy of buying assets on the cheap and holding them, preferably long-term, in the hope that their value will appreciate. But Seneca also has a strict policy of ruling out exposure to asset classes where it sees little value.

Read more: Why the UK stock market might not be as appealing as it looks

"We started reducing our equities target about a year and a half ago as we got through the economic recovery," chief investment officer Peter Elston told City A.M.

"As we progress through the expansion phase we will lower it further. By the end of 2019 we will be underweight."

Elston added that he expected a "big recession" in the UK by 2020. "Recessions are like death and taxes – they're guaranteed to happen," he said.

"We have started reducing our exposure to UK equities because it has started raising interest rates. Next will be the EU, because Draghi [president of the European Central Bank] seems to be preparing markets for interest rate rises."

Read more: Asset managers are cutting exposure to UK equities amid Brexit and the threat of a Corbyn government

As interest rates rise cash becomes more attractive as a place for investors' money and equities may perform less impressively.

Seneca's moves have been somewhat prescient in the past. Last year, the fund house ditched drinks company Conviviality after making a 65 per cent return on its investment. The business has since slumped into administration, resulting from governance and "financial mis-statement" issues which Seneca had also become concerned about, according to Elston.

Read more: Drinks giant AB InBev urges shareholders to support Conviviality

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