Why you should invest in UK equities
30-40 years ago, UK equities were popular amongst investors. Britons saving for their futures tended to invest in both UK equity funds and individual shares of UK companies, spurred on by the exciting opportunities in a booming economy, a newly deregulated stock market and the privatisation of many state-owned companies. UK equities made up the bulk of most people’s ISAs (or PEPs as they were known previously) and pensions.
But in recent years, the popularity of UK equities has waned and not even the best UK investment funds have been able to tempt investors to part with their money. A combination of the Brexit vote in 2016, which created uncertainty and market volatility, and the more exciting opportunities to be found elsewhere (particularly the growing US tech scene) prompted investors to reduce their exposure and look further afield.
But are investors right to still be shunning UK equities? The United Kingdom has a rich history of innovation, global trade, and solid financial markets. And it is still home to a number of leading global companies and fast-growing smaller firms with exciting opportunities.
What makes investing in the UK attractive?
One of the primary factors that makes UK equities appealing is our robust financial sector. London is a global financial hub, home to the London Stock Exchange (LSE), which ranks among the largest stock exchanges in the world. The LSE provides access to a wide range of companies from various sectors, including finance, technology, healthcare, and energy, offering investors ample choices to build a diversified portfolio.
The UK’s strong legal and regulatory framework also adds to its appeal as investors benefit from transparency, stability, and protection of their rights.
And, contrary to popular belief, the UK isn’t all about banks and oil companies. The UK government’s support for research and development, coupled with the presence of world-class universities and a commitment to innovation and technology also positions it as a leader in sectors such as fintech and artificial intelligence.
For income investors, the UK is also attractive because it has a strong history of dividend culture. Many UK-listed companies have a consistent track record of paying dividends, providing investors with a regular income stream. During periods of low economic growth, these dividends can play a crucial role in boosting total returns.
Searching for opportunities
While researching the hundreds of different companies on the UK stock market might be a bit much for the average person, a professional fund manager can do this for you. They can pool your money with that of other investors and place it in a number of different businesses they think can do well over time.
UK equity funds come in many shapes and sizes. Some will invest only in larger, multi-national companies, while others will focus on the UKs smallest businesses, hoping to invest early in their journey and benefit from their growth. Some UK equity funds will focus solely on making your capital grow while others will also look to produce a regular income from dividends. And not all UK equity funds will search out quality companies that offer stability – opportunities can also be found among those that have suffered a setback, but where long-term prospects look good.
Here are five different UK ‘All Companies’ funds to consider:
- AXA Framlington UK Mid Cap fund focuses on medium-sized companies, but its manager will be pragmatic about including select opportunities from the smaller companies space too, as well as letting winning mid-cap holdings grow into larger-sized companies.
- CT UK Extended Alpha invests primarily in large UK companies, but with an unusual approach. As the name suggests, the manager aims to extend investors’ potential returns by buying stocks he expects to do well and also looking to make money on stocks he expects to do badly (shorting).
- Finding undervalued companies that are yet to deliver on their potential is the aim of ES R&M UK Recovery fund. Manager Hugh Sergeant holds approximately 200 of these out-of-favour stocks in the portfolio. He uses his three decades of investing experience to identify companies where he believes management have the capability to turn things around.
- One of the few products to be launched in response to the Covid-19 pandemic, the Schroder British Opportunities trust (SBO) seeks to tap into the unloved status of UK equities by targeting companies which have been in the eye of the storm. The portfolio consists of 30-50 small and medium-sized public and private businesses requiring fresh injections of equity.
- Launched in 2020, VT Downing Unique Opportunities is run by the highly experienced Rosemary Banyard. Rosemary has a well-defined process looking for companies that have sustained competitive advantages, with low debt and good management teams. The final portfolio will be highly concentrated at 25-40 names.
There are plenty of great opportunities to be found among UK-listed companies, especially for fund managers that focus on stock picking.
