Audrey Ryan has been adding to internationally focused names and reducing domestically exposed stocks in her two Kames Capital ethical funds as October's Brexit deadline approaches.
The manager of the £552m Kames Ethical Equity and £453m Kames Ethical Cautious Managed funds began tilting the portfolios towards quality companies with earnings resilience and a global footprint in Q3 last year, but it was not enough to insulate the vehicles from Q4's sharp market correction.
Not being able to own the more defensive 'bond proxies' from the pharma, tobacco, alcohol and aerospace industries because of the funds' ethical screens hurt short-term performance last year.
"Q4 2018 was quite a challenging quarter for the funds," she said. "We saw underperformance of the more cyclical names, there was a notable setback in small and mid caps relative to large caps, and many of the domestically focused stocks had a torrid time.
"It was a challenging backdrop for the Ethical Equity fund - the large growth, bond proxy-type names that have done well are not accessible to me as a manager."
However, performance has come back in the first half of this year and Ryan is continuing to add to defensive growth stocks that generate more of their revenues outside of the UK, in efforts to mitigate some of the uncertainty around Britain's EU exit.
"We are increasing exposure to stocks with an international focus given the economic backdrop and an uncertain period in terms of the political environment and Brexit," she explained.
"I have taken further money out of domestic names selectively as I think we will enter a period of volatility until we get more clarity on the Brexit roadmap."
Although she remains cautious on some domestically oriented names, Ryan said investors should not tar all these companies with the same brush.
Among these, one stock she is still comfortable to hold is Howden Joinery, which makes and sells kitchens primarily in the UK, although it does have a small presence overseas.
A recent management change saw the former boss of Screwfix take over as CEO, bringing "more discipline" to an already well-managed business, which has opportunities to expand into international markets.
Ryan also likes student accommodation provider Unite Group, a more defensive domestic stock that benefits from the imbalance in supply and demand for quality student accommodation in the UK.
It recently agreed to buy rival Liberty Living, paving the way for future growth opportunities.
Software provider Aveva was another key contributor to performance in the first quarter of this year as it tapped into the theme of digitisation of industrial companies, she said, adding that its global footprint, high and recurring revenues, strong balance sheet and recent acquisition make it an attractive stock to hold.
The manager is mindful of the economic data coming out of the UK and the wider world and noted there could be a squeeze on consumer spending to come, although her base case is not for a protracted recession in the UK.
"A lot hinges on how we work through the end of October Brexit deadline and what that will mean for businesses and households," she warned.