Time to Think Positive about Equities



Posted on: 9th August 2018

It is apparent that too many of us have a negative outlook on UK equities. At Haven IFA, we believe this must change. There are many persuasive arguments for why you should consider investing. Particularly, the consensual negativity has formed pricing inconsistencies that, for many bottom-up stock-pickers, provide valuable and beneficial return opportunities. With our experienced knowledge of investments and the UK market, we are in an ideal position to grab these opportunities, which can greatly benefit our clients.

A Changed Outlook on Equities

No longer are people looking at equities with a positive mindset. In the BAML global fund manager April survey, it was revealed that UK equities are perceived to be the least striking asset class for markets across the globe. When we look at previous returns from over the past year or so, it seems that UK indices have lagged the majority of other equity markets.

Laying beneath the vulnerability is a marked divergence of the market. Although the majority of stocks that are internationally-focused have been holding up well, there is a lack of love for UK-domestic stocks. They have been trading at valuations last seen after the 2008 financial crisis. Previously, events such as these have proved to be an ideal place of pursuit for stock-pickers. Many of these stocks are continuously benefiting from strong fundamentals and a positive view. This means they can offer value to investors when you compare them to the wider market.

So, what is weighing down on investors outlooks on equity? There are several aspects that play a role here, but we believe the risks are exaggerated.

Brexit Uncertainty

We have less than a year before the UK officially waves goodbye to the European Union (EU). It is understandable for investors to be disconcerted by the lack of clarity regarding the withdrawal terms for Britain, as well as how the economy will be affected. With a strong divide in opinions, however, it seems the UK is looking at a more reasonable outcome than a dramatic removal from the EU. What’s more, we only need to look at our history to remember that companies can develop and innovate in response to change. We expect new opportunities to come out of the woodworks as we see the relationship between the UK and Europe progress and continuously evolve.

Economic Slowdown

There has been a negative response to the recent slowdown in UK growth. Regardless, the economy in the UK is still on the rise and is supported by global activity that is consistently improving. What’s more, we are at a historically low level of unemployment and wage increases have finally begun to overtake the rise in prices. This has had a significant impact on consumer spending.

Political Instability

Many investors have shown concern regarding the weak positioning of the UK government and the threat that the UK would suffer in the hands of a government run by Jeremy Corbyn. However, not all stocks and sectors will be affected equally by one another. With numerous companies in the UK bringing in a portion of their earnings from overseas, the UK stock market and the UK economy are not the same things.

Why Invest in UK Equities?

Not only do the negativities seem to be exaggerated, we think that there are quite a few positive reasons why people should be investing in UK equities. When you look at the valuations, they are actually rather attractive. The UK offers a higher yield compared to the majority of developed equity markets (gross dividend yield c. 3.7 per cent versus 2.7 per cent for Thomson Reuters Global Equity Index, 29th May 2018).

Though international investors are underweight UK equities, we have seen an increase in corporate M&A activity. This leaves us with the implication that there is legitimate value to be discovered. As there are such low expectations, even the smallest improvement in sentiment could catalyse flows back into UK equities. In contrast, we could see a greater potential in return versus a consensual contrast if we were to increase exposure to UK equities.

Thinking Long-term

What the UK equity market offers is no less important to asset allocators. The UK equity market can offer high standards of corporate governance and the rule of law, plus a wide selection of quality companies throughout industry sectors. It offers a dividend-paying culture and can provide access to worldwide markets. Reflecting one of the most open and worldwide economies across the globe, the UK stock market gives exposure far beyond the UK.

Talk to Haven IFA

Where you choose to invest is imperative for your financial future. Having an independent financial advisor by your side to ensure you make the right investment decisions can ensure you can live comfortably and enjoy your money throughout retirement. To learn more about how Haven IFA can help, get in touch.