UK Equities: Overlooked, oversold, and over here
In the past two years, investors have pulled £19.7bn out of open-ended UK equity funds – the equivalent of the entire market capitalisation of Tesco – with negative net sales in all but two of the past 24 months, and outflows of over £12bn in the last 12 months alone. UK equity valuations (measured on a forward P/E basis) are close to record discounts versus the US and are also historically low compared with European equities.Across the three AIC UK equity sectors, discounts to NAV stand at an average of nearly 10%. Yet the FTSE 100 index briefly reached an all-time high of more than 8,000 points in February this year, the broad UK market has beaten the S&P 500 over the 12 months to end-April and is in line with the US on a three-year annualised basis, and a recent slew of takeover bids suggests that foreign private equity buyers at least are alive to the opportunities on these shores.
In this note we look at the gap between perception and reality in the UK equity market, the opportunities and threats in the economic and market outlook, and the emerging consensus that the valuation discount versus other major markets is at or close to an inflection point. We consider the benefits of UK equity strategies both for income investors and for those seeking exposure to the higher growth potential of smaller and mid-cap companies.
Although inflation remains stubbornly high, interest rates are at levels not seen since Lewis Hamilton won his first Formula One championship, and the UK may still experience a recession this year, we argue that the breadth and depth of the equity market means it can offer something for everyone, whether income or growth, cyclical or defensive, large or small.
We therefore conclude that UK equities – which arguably have spent seven years in the wilderness of Brexit – have earned a comeback.
Artemis Alpha trust is an investment trust, engaged in buying and selling investments. Co.'s portfolio is managed by Alternative investment Fund and comprises the U.K. equities, with selected overseas investments. Co. also invests in unquoted companies. Co.'s portfolio of investments span across U.K., Luxembourg, Isle of Man, Australia, Germany, Japan, Switzerland, Canada, Cyprus, France, U.S., Ireland, and Finland. Co.'s investment portfolio includes Industry, such as financials, oil & gas, consumer goods, industrials, technology, basic materials, telecommunications, utilities, health care, and consumer services. As of Apr 30 2017, Co.'s total investment was valued at£156,756,000.
JP Morgan Smaller Companies Investment Trust is an investment trust company. Co. invests in a portfolio of small companies. Co. employs JPMorgan Funds Limited as its Alternative Investment Fund Manager, which delegates the management of Co.'s portfolio to JPMorgan Asset Management (UK) Limited.
Law Debenture Corporation is an investment trust and a provider of independent professional servicesdivides into two areas of business: investment trust and independent professional services. Col. is an investment trust, listed on the London Stock Exchange. Co.'s portfolio of investments is managed by Janus Henderson Investors under a contract. Co. invests in a portfolio diversified both geographically and by industry. Co. is a provider of independent professional services. Co.'s activities are corporate trusts, pension trusts, corporate services (including agent for service of process), whistle blowing services and governance services.
Merchants Trust is an investment trust company that invests primarily in U.K. equities. Co. focuses its audit work primarily on the valuation and existence of investments and income. Co. engages Allianz Global Investors GmbH to manage its assets.
Miton UK MicroCap Trust carries on business as an investment trust. As of Apr 30 2017, Co. invested in a portfolio of U.K. quoted companies, generally with market capitalizations of less than £150,000,000. Co.'s Investment Manager is Miton Trust Managers Limited, a wholly-owned subsidiary of Miton Group plc. The Investment Manager is responsible for the management of Co.'s portfolio in accordance with Co.'s investment policy and the terms of the Management Agreement. The Investment Manager has delegated investment management to Miton Asset Management Limited.
Schroder UK Mid Cap Fund is an investment company. Co. carries on business as an investment trust. Co. invests in mid cap equities.
Shires Income is an investment company, engaged in investing mainly in U.K. equities. Co. invests principally in the ordinary shares of U.K. quoted companies, and in convertible and preference shares with above average yields. Co.'s investment portfolio comprised of a range of sectors including oil and gas, basic materials, industrials, consumer goods, healthcare, consumer services, telecommunications, utilities, financials and technology. Co. is managed by Aberdeen Fund Managers Limited. As of Mar 31 2017, Co.'s total investments was £97.8 million.
Troy Income & Growth Trust carries on business as an investment trust. Investment trusts are collective investment vehicles, constituted as closed-ended public limited companies. The management of the investment portfolio has been contractually delegated to the Manager, Troy Asset Management Ltd. Troy Asset Management Ltd is an independent fund management company generates absolute returns for investors over the long term. Their investors include private individuals, charities, pension funds, trusts and endowments.
Capital Access Group advises companies on effective engagement with investors. Our experienced team offers market-leading access with hard-to-reach investors, including smaller institutions, pension funds and private client fund managers. These under-serviced investors are located not only in London but across the regions of the UK and Europe. We have an unrivalled knowledge of this extensive audience, to whom our published research is distributed, as well as to larger institutions. We offer this service as part of an integrated investor communications strategy to promote a company’s investment story.
Our clients, ranging from AIM to FTSE 100 companies, benefit from our professional, long-term relationships with investors. Not only do we identify and target investors, we contact them directly and relay their views back to clients with analysis, interpretation and advice. This ensures that our clients are in control of their investor engagement. The objective is to improve the reach and engagement with investors, which in turn strengthens the share price.
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