Given the UK is the ‘home’ market for many of our clients, it is a key investment area for our portfolios. It currently faces several economic challenges – low or potentially negative growth, high inflation and rising interest rates.
With this in mind, we believe now is the time to focus our UK allocation towards the large-cap end of the market capitalisation spectrum, which enjoys greater exposure to global markets and overseas revenues (according to FTSE Russell, over 80% of FTSE 100 earnings are sourced outside the UK1).
Despite the FTSE 100 hitting an all-time high in early February, we continue to see value in UK companies versus their US peers. The average price/earnings ratio – a useful metric for measuring a company’s value – is currently around 14 for FTSE All Share companies versus over 19 for S&P 500 companies, although this measure is slightly distorted by the presence of more expensive growth stocks in the US index.
We also see a similar pattern when we look at individual sectors. For example, mining stocks in the UK not only have a lower valuation than their US counterparts, they also tend to offer a much higher dividend.
To reflect our views, we have selected a UK Large Cap strategy for our portfolios that applies a high conviction, concentrated approach to stock selection that is not beholden to benchmark weightings. The management team uses macroeconomic and thematic research to identify key trends, along with the usual economic and investment cycles, to inform their investment decisions. This approach ensures the portfolio benefits from structural trends that can persist for long periods of time.
Find out more about the current positioning of our portfolios.
1 https://www.ftserussell.com/blogs/overseas-revenues-boon-ftse-100-performance
Disclaimer: ‘Where the business has expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. The information contained within this communication is believed to be reliable but Realm Investment Management Limited does not warrant its completeness or accuracy.
This communication is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell investments.’
