Our investment approach is based on two propositions. Firstly, if you invest in equities, it is useful to be of an optimistic disposition. I will assert our optimism for global equities in coming decades. You could argue that the outlook has never been better. Technological change has created wealth for companies and consumers, and the advent of AI is likely to accelerate that process. Technology-derived productivity gains tend to drive down inflation, and hence interest rates; we hope rapidly falling interest rates could be a positive surprise in 2026-2027.
Secondly, if you invest in UK equities, as we do, it is important to shake off the pessimism that has afflicted the UK market. There are many world-class UK corporations offering participation in the great money-making investment themes of the 21st century. If the UK companies that populate our portfolios grow as we expect them to, they could deliver years of globally competitive returns.
Three UK equities to consider
I am disappointed that my first pick has become such a polarising investment, because we have been long-term backers of the company. However, if our strategic outlook is correct, then owning shares in the world’s top spirits company, Diageo (LSE: DGE), could be highly rewarding. Amid all the debate about consumers’ changing as regards drinking, no one has ever disputed the proposition that consumers are “drinking less, but better”.
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That trend has been a multi-decade driver of Diageo’s business, the purveyance of premium spirits, and we expect it to continue. Even more fundamentally, technological change brings with it the risk of technology obsolescence. In these conditions, where some tech-wealth could evaporate with disarming speed, investing part of a portfolio in brands or franchises where you can, with some confidence, predict continuing relevance for decades to come makes a lot of sense. We have no doubt Diageo’s best brands offer that durability.
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RELX (LSE: REL) is an important global company, a trusted provider of data and analytics tools to key global industries. Its CEO told us recently that RELX’s biggest division, Risk, is now, in his opinion, worth more than 50% of the value of the company, compared with only 2% 20 years ago. But despite that past performance, the Risk division’s current growth rate and its prospects appear better than ever. In his and our view, the advent of AI presents a chance for companies like RELX to create new insights for their customers from their proprietary and trusted Data.
Investors sometimes baulk at the apparently “high” valuation accorded to RELX. But surely, if we have learned anything from the long Nasdaq bull market, it is that digital companies, with must-have services and multi-year growth prospects, deserve high valuations. A mid-20s forward price-to-earnings ratio may be higher than the average UK company, but RELX is not an average company – far from it.
Clarkson (LSE: CKN) is an example of the opportunities in the unloved UK market. Here is a global leader – the world’s biggest shipbroker by a nautical mile – with a credible strategy to invest in technology and its data assets. The CEO describes his strategy as one of turning Clarkson into “the Bloomberg of global shipbroking”. If the company can execute that strategy, its reputation and valuation would improve dramatically.
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