Global investors have been selling UK stocks at the fastest rate since May 2016 as fears of a “no deal” Brexit have spread. According to the latest Bank of America Merrill Lynch survey, 28% of fund managers are underweight in UK stocks.
“UK valuations are at the bottom end of a range of metrics,” according to John Baron in the Investors Chronicle. But are “UK stocks unloved for good reason”? asks Mark Atherton in The Times. “Or are those who are shunning them missing a buying opportunity?”
While the weakened pound has been positive for UK stocks with large international earnings over the last two years, these stocks now look pricey. “It’s certainly not the best time to own a tracker fund or to indiscriminately pile into the big companies that dominate the index,” Maike Currie, investment director at Fidelity International told The Times. Markets famously don’t like uncertainty and investors are put off by the possibility of a Brexit disaster.
But Alasdair McKinnon, manager of the Scottish Investment Trust, says negativity towards UK stocks looks overdone and there are many sectors where valuations look cheap. While the US stockmarket is trading at 17.7 times earnings, the UK is trading at 13.5 times. What’s more, the FTSE 350 index is yielding close to 4%, while European stocks only yield 3%, and US stocks a mere 2%.
In terms of sectors, Nick Kissack, manager of the Schroder UK Alpha Plus fund, favours financials, resources and companies selling basic consumer goods. He says: “Brexit remains a concern, but is providing the opportunity to buy quality domestic companies at attractively cheap prices.” Among those McKinnon likes are retailers and commercial property stocks including Tesco, M&S and British Land.