The UK has been beset by political and economic turmoil in recent months, but as the investment environment undergoes a fundamental transformation, investors see opportunity. The structure of the UK’s FTSE 100 differs significantly from that of many large developed markets, in that it is heavily focused on consumer staples, finance and materials, but contains very little Growth-driven sectors like technology have benefited from the era of ultra-low interest rates. Global financial markets have had a devastating year amid Russia’s war in Ukraine and the aftermath of Covid-19, including supply bottlenecks linked to persistent lockdowns in China. . Aggressive monetary policy tightening from central banks to curb sky-high inflation has hit riskier assets. At a news conference last Tuesday, GAM’s Global Chief Investment Officer David Dowsett said that in addition to numerous external shocks, markets are undergoing rate normalization after about 15 years in extremely low levels around the world. He added that this period of monetary policy is over. and that we are transitioning to a “structurally different” interest rate environment in the near future, primarily because the “globalization era is clearly over” due to global supply chain problems. demand caused by China and Russia’s Covid-19 lockdown. boycott. “We’re back to an investment environment where not everything pays you back and not everything gets a good return, because capital really does pay a price,” says Dowsett. that,” Dowsett added, adding that liquidity is now more of an investor concern than capital appreciation at any cost. He argues that in a more uncertain investment landscape, investors should look at income-generating assets, which is where UK shares, which tend to offer steady dividends, come back. “in vogue” after years of wildness. Adrian Gosden, manager of the UK GAM Equity Income Fund, highlights six FTSE 100 stocks – all held by the fund – with dividend yields between 5% and 7% being traded in exceptionally low rates. Those are BT Group, Barclays, GSK, Lloyds, Imperial Brands and BP, all of which trade in price-to-earnings ratios – a measure of a company’s share price compared to earnings per share, used to determine if it is overvalued or undervalued – out of five to nine. “If you’re at a P/E of 5 and yielding a dividend yield of 5% and that P/E hits a P/E of 6, with that dividend you’re giving back to your investors. 25%,” said Gosden. “My view is that the UK is already in a position, through a variety of reasons, where it’s sitting there that is appreciated in absolute terms… We’re moving towards an environment where we have inflation, which we haven’t had since the 2008 Financial Crisis, and in that environment UK equity income has a very proven track record.” These attractive valuations for UK equities were also identified in a note last week by BlackRock Fund Basic Equities. Portfolio managers Adam Avigdori and Oliver Dixon also cite rising share buybacks and attractive dividends boosting the country’s shares on a gross return basis, while a weak pound also generates a stepping stone against a recession for companies with dollar-based earnings. Avigdori “Not only are prices falling in the UK to levels not seen since 2008, but companies are buying back record amounts of their shares. And Dixon says. “By our calculations, £51 billion. UK ($58.3 billion) share buybacks recorded to date in 2022 equates to a near 3% repurchase yield on the FTSE 100. When this is added to a 4.5% dividend yield – the highest among developed markets, according to JP Morgan – total earnings are more than 7%. This compares to the current yield for UK 10-year gilts which is around 4%. ” BlackRock also recommends that investors look for selective opportunities in the healthcare, home building, and certain retail sectors. Small- and mid-cap value stocks, GAM’s Gosden argues that with much of the bad news about the UK economy priced into UK markets, a slight positive change in news flow could mean small-cap stocks and both provide an “octane” to investors.Small and mid-cap stocks have been hit harder during this year’s downturn than the major blue chip indexes, with the FTSE 250 down more than 20% year-to-date, compared with a drop of just over 1% for the FTSE 100. . FTSE 100 is for export.It’s your octane in the market that will actually make a profit, make 25% a little pedestrian look and that will happen if things don’t go as they should. so [bad]”He said. GAM holds about 50% of its UK equity income portfolio in small and mid-cap stocks, with a focus on companies with a strong competitive edge. Opportunity This small- and medium-sized grouping was also highlighted in a note last week by Abby Glennie, VP of Smaller Companies at Abrdn, who said some companies can still manage to grow as consumers forced to cut costs, especially food and energy.” , is likely to retain its loyal fan base and possibly attract new customers during a downturn, providing food at an affordable price compared to (with) other retailers,” said Glennie. Glennie also thinks home furniture company Dunelm can weather recession pressure, based on multiple price and product pressures. Products are not seasonal, meaning inventory can be managed should demand drop.emand at the more affordable end of the market could benefit, she stressed. Homebuilder MJ Gleeson, the company estimates that owning one of its properties is cheaper than renting and offers the benefits of building equity.
