UK mid-cap stocks look forward to life after lockdown
The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
British mid-cap shares are enjoying the prospect of life after lockdown, says Danni Hewson of AJ Bell. The FTSE 250 has soared by 63.5% since its nadir in March last year, and hit an all-time high at the end of last week. Shares in everything from cruise ship business Carnival to shopping-centre owner Hammerson registered double-digit gains in the space of seven days.
FTSE 100 plods along
Investors in the blue-chip FTSE 100 are not feeling so jubilant, says Julien Ponthus for Reuters. The index is up by 4.5% so far this year but has underperformed other major markets for yet another quarter. It is still 7.5% short of its February 2020 level; trading around 6,880 points this week it also remains below the 7,000 level that it fell through as Covid-19 took hold.
The British market is often described as “unloved”, but perhaps “abandoned” would be a better word, says Ross Clark in The Spectator. The FTSE 100 is up by just 10% since the 2016 referendum. Over the same period the Hang Seng advanced by 42%, the Dax by 44% and the Dow Jones index by 88%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Yet more and more fund managers are now betting that the blue-chip index’s stodgy energy and financial businesses “have been hammered well beyond [what]they deserved, so there is bound to be a correction in their favour”. Funds network Calastone reports that £600m of net investment flowed into UK equity funds in March, compared with £151m in February, says David Brenchley in The Sunday Times.
The UK economy was particularly badly hit by the pandemic, with GDP contracting by 9.8% last year, compared with a 6.6% fall in the eurozone and a 3.5% decline in the US. That gives it more room to rebound. Indeed, the International Monetary Fund (IMF) thinks the UK is set to expand at its fastest pace since the late 1980s over the next two years, says Liam Halligan in The Daily Telegraph. While Britain’s first-quarter lockdown will see it lag the US this year, come 2022 it could be the fastest growing major developed economy in the world.
FTSE 250’s time to shine
The FTSE 250 is best-placed to gain from the UK rebound, says Laith Khalaf of AJ Bell. The FTSE 100 is very international: roughly 75% of blue-chip earnings come from overseas. That earnings split falls to 50% domestic and 50% overseas for the FTSE 250, not a “pure barometer of the health of the UK economy”, but closer than the FTSE 100. Since the turn of the century the mid-cap index has “wiped the floor with the big blue chips of the FTSE 100”. The FTSE 250 has returned 533% over the past 20 years, far superior to the FTSE 100’s 154%, notes Brenchley.
Fund managers punting on the blue chips are still hopeful that their time will come, says Ponthus. FTSE 100 shares trade on 14.2 times forward earnings, compared with 17.9 in the eurozone and the global average of approximately 19.5. Throw in an attractive 3.1% average dividend yield and UK shares are, as James Henderson of Janus Henderson puts it, “very, very cheap”.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
GSK share price surges after $2.2bn Zantac drug settlement
GSK has settled lawsuits in the US that alleged the drugmaker’s now-discontinued heartburn drug Zantac triggered cancer
By Chris Newlands Published
-
Will the Autumn Budget impact investment markets?
Keir Starmer has warned the Autumn Budget will be “painful”. Will it impact investment markets and should you tweak your portfolio before 30 October?
By Katie Williams Published
-
Qualcomm could acquire rival Intel – but securing the deal won't be easy
A tie-up between Qualcomm and its semiconductor rival Intel would be a coup. But multiple regulatory and commercial hurdles lie ahead.
By Dr Matthew Partridge Published
-
Modi’s reforms set Indian stocks on fire
Indian stocks pass a new milestone, but global fund managers are holding back. Are there signs of overheating?
By Alex Rankine Published
-
How to invest in the quiet market months
Here's how to invest in the quiet market months, since “sell in May” hasn’t paid off this year.
By Cris Sholto Heaton Published
-
Spire Healthcare: invest in the booming demand for private healthcare
Spire Healthcare is one of the few listed companies benefiting from the growing trend in private healthcare. Should you invest?
By Rupert Hargreaves Published
-
Are insurance companies a good investment?
Costs may be soaring but the insurance sector is currently going through one of its most profitable periods. The market has been slow to realise the opportunity here
By Rupert Hargreaves Published
-
Dr Martens shares slump: should you give it the boot?
Over the past three years, Dr Martens has fallen out of fashion. Are the shares worth a look?
By Jamie Ward Published
-
Google's legal challenges – could it be broken up?
Google is fending off legal challenges from both the EU and the US. But would breaking it up actually work?
By Dr Matthew Partridge Published
-
Fast-growing bargain stocks the market has missed
A professional investor recommends attractive stocks to invest in. This week: Dan Higgins, portfolio manager, Majedie Investments, highlights three favourites
By Dan Higgins Published