2021 Grand National: Why horses for courses applies to the investment world
With a history dating back more than 180 years, the Grand National is undoubtedly one of the biggest...
As 2020 draws to a close we finally have some good news: a Brexit deal. When the detail is revealed, it probably won’t be what was promised, or even hoped for when the referendum took place, but it is a deal nevertheless and a hard Brexit on 1st January has been avoided.
As Richard Buxton, manager of Merian UK Alpha, commented: “The potential damage to both sides from a ‘no deal’ – exacerbated by the ongoing impact of the pandemic and lockdowns – was too great to go down that road, and for all the inevitable bluster, threats and counter-threats along the way since Brexit, we have an eleventh hour agreement. Skinny, lightweight, the bare minimum required but a deal, nevertheless. This has to be good news for investors in UK equities.”
The deal removes the cloud that has been hanging over the UK for more than four and a half years and it will allow UK plc to finally have more certainty and the ability to plan ahead, reinvest and grow businesses.
“Global investors may well bide their time to see how the UK fares in its newly negotiated relationship with the EU before plunging back into UK equities,” Richard continued. “Any January scenes of lorry queues at British ports (of which we have of course already had a foretaste), reports of obstacles to the smooth passage of goods or an inability of supermarkets to source avocados – heaven forbid! – will only encourage such investors to stay their hand before rushing to take their underweight exposure to UK stocks back towards a neutral (or even overweight) position.
“Non-UK companies looking to acquire UK assets may be rather quicker off the mark, however. Merger and acquisition activity has been picking up, and an end to ‘no deal’ uncertainty may well spur more international companies or private equity firms to press ahead with plans to acquire UK assets in a currency still cheap on ‘purchasing power parity’ yardsticks.”
“Now if that pesky virus could just calm down, it might not just be the global population enjoying a ‘roaring 20s’ in the coming years but the UK stock market too,” added FundCalibre’s Darius McDermott.
Over the past four and a half years, European equities have done decidedly better than their UK counterparts. The average fund in the IA European Smaller Companies sector is up 69%* and the average fund in the IA Europe ex UK sector is up 59.3%*.
In comparison, the average IA UK All Companies fund is up 25.1%* while the average IA UK Equity Income fund has managed to return just 13.3%*. Only the IA UK Smaller Companies sector has managed to hold on to the European coattails, returning 57.7%*.
“UK equity income funds have had a torrid time of late,” continued Darius. “Not only have they felt the effects of Brexit, but COVID has led to many dividend cuts and, as income investing generally leads you to value parts of the market, these funds have also been hit as value sectors have been impacted the most by the virus.
“But this also gives us an opportunity to make good money now over a five year basis. Not only could the share prices of these companies be given a boost by more certainty and positive news flows but given the cuts in dividends we’ve experienced in 2020, there is a lot of scope for dividend growth too.
“While many bourses around the world have regained their pre-COVID highs, ours has not and it remains cheap compared with its global peers. So valuation support, some post-deal Brexit positivity, attention from investors and another vaccine bounce may all lead to better times ahead.”
This fund has been a stalwart of the UK equity income sector for two decades and has an excellent team and a strong process. It is designed to offer a diversified, eclectic mix of cashflows from different companies to ensure a sustainable and durable income.
Launched in October 2017, this UK equity income fund invests in companies of all sizes – from the very small and those listed on the AIM stock market, through to the FTSE 100. The manager can invest some money in a company’s bond if he feels the opportunity is better.
This concentrated multi-cap income fund has a bias towards smaller companies and a manager with unrivalled experience in the small-cap space. This makes it a compelling choice for those looking for capital appreciation and an attractively growing income.
Schroder Income is a deep value-driven fund that invests in companies valued at less than their ‘true’ worth and waits for a correction. It tends to avoid the big income producers in favour of more niche names, where both capital as well as income can grow significantly.
*Source: FE fundinfo, total returns in sterling, 23 June 2016 to 23 December 2020.