The unloved asset class: Is it time to be cheerful yet?


Fund managers consistently beat the drum about holding investments for the long term. Yet we continually see evidence of investors – professional and otherwise – selling particular areas on the lows and buying on the highs.

The latest major asset class to have fallen out of favour has been UK equities, and with ongoing Brexit negotiations, an unstable political landscape, rising inflation and concern over interest rates, it is easy to see why investors are unnerved.

According to the latest Bank of America Merrill Lynch survey, global exposure to UK equities has fallen to the lowest level since records began, while statistics from the Investment Association showed outflows from UK equity funds in January were twice the previous month’s, reaching £532m.

However, encouraging signs in the domestic economy have led some investment experts to forecast a revival in UK equity holdings.

Last week, it was revealed the UK government’s budget deficit looked marginally healthier, with the headline level of borrowing down from £46.2bn to £42.6bn in the 12 months to the end of March, according to figures from the Office for National Statistics.

And, while possibly a case of ‘they would say this, wouldn’t they?’, several high-profile investors committed to the asset class have given us reasons to be cheerful about UK stocks.

Legal & General Investment Management’s Stephen Message points out in our piece on the UK High Street that wage growth is finally starting to emerge, giving a much-needed boost to UK consumer plays.

Veteran UK equity investor Neil Woodford has said he sees evidence of a stronger UK and weaker-than-anticipated global economy, while Old Mutual Global Investors’ CEO Richard Buxton has urged investors to “fill their boots” with UK equities even as he said the asset class could remain “unloved for years” – a testament to taking the longer-term view.


So, are investors missing a trick, given the discounted opportunities abound?

Some asset allocators are starting to react; Brooks Macdonald recently confirmed a shift from being underweight UK equities to neutral, as markets now appear “cheap”, although it did issue caution over the highly levered state of the domestic consumer.

The FTSE All-Share is up over 30% since the Brexit referendum and, in spite of a trying time year to date, it is not alone. We now see that updates on Brexit negotiations are having little effect on market movements while rising interest rate hikes appear to be priced in.

As all the initial fears seem to have subsided, as we approach the anniversary of the vote, there are seemingly more reasons to be cheerful about UK equity markets than there were two years ago.


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