Investors are waking up to the value in UK stocks – you should too
It looks like the value in UK stocks is finally becoming obvious to everyone else, says Merryn Somerset Webb. If you haven’t repositioned your portfolio, you might want to get on with it.
Here’s something odd (or that I think is odd, at least): there have been net outflows from UK-focused equity funds every month for the last eight months. January was no exception: data from funds network Calastone suggests that investors sold £795m worth of funds – a new record. Some £2.9bn has now left the market since May.
On the plus side (sort of) this net outflow number was in large part driven less by active sellers (the value of sell orders is in line with the long term average) than by a lack of buyers.
Some won’t think this odd at all – there is a view that the UK’s mix of stocks is old fashioned, ESG inappropriate and long-term tainted by both our political difficulties and, of course, Brexit. We don’t hold that view (although we are pretty keen for the political difficulties bit to go away). We were pleased that even as the over-priced US stockmarket gyrated all over the place in January – and ended the month significantly down – the FTSE 100 ended up more or less flat.
We’ve been mentioning the value available in UK stocks for some time now – and it looks like that value is finally becoming obvious to everyone else too. It is healthier, surely, as Hamish McRae puts it in the Mail on Sunday, to invest in firms with real profits. Less glamorous, sure – but better. Dividends, too – AJ Bell reckons that the FTSE 100 will pay 4.1% this year – not bad and possibly some protection against inflation.
We are quite clearly not the only people to think so; Nick Train agrees. Here’s his view: “I see globally significant businesses at least as good if not better than their global peers, but valued in many cases at a meaningful discount. There is more excellence in the apparently moribund UK stockmarket than people give credit for.”
Others see it too. A headline in the Financial Times yesterday announced that “activists overhaul British boardroom after snapping up corporate bargains”. Yes, the cheap prices in the UK have caught the eye of the world’s activist investors. The UK, one told the FT, “is a bargain basement right now compared to the US where there’s too much money chasing too few deals.” So why not buy into them and work to make them better?
Activist investors are currently targeting Vodafone, Unilever, GSK, Shell, Aviva, Taylor Wimpey and Pearson. Private equity firms have also been obviously active – and both JP Morgan and Morgan Stanley have recently noted that the UK stockmarket doesn’t look too bad at all as an investment.
Things aren’t all good, though. The Bank of England is not exactly covering itself in glory (the 0.5% rise in interest rates yesterday represented a bare minimum, and the governor’s suggestion that workers do not ask for large payrises was about as tin-eared a comment as I have ever heard). And our cost of living crisis is real.
But nonetheless, Brexit has been delivered; the vaccines have been delivered – and so have the end of Covid restrictions (in England at least – Scotland is insisting on dragging it out); the UK is on track to be one of the fastest growing economies in the G7 (4.9%); and our stockmarket is one of the view fairly valued ones left in the world (Japan and emerging markets as a whole look OK, too).
Readers who have not yet rebalanced their portfolios towards the UK might want to get on with it.