A recent Bank of America fund manager survey is showing that the UK market is now the most favoured by investors in Europe.
We called it back in December – the UK was one of the markets we highlighted in our 2024 outlook, and our UK investing campaign in May showcased some of the best investment ideas investing in the domestic market.
In recent years, the UK stock market has fallen out of favour with investors. This is perhaps not surprising given the level of political uncertainty, and if there’s one thing investors dislike, it’s uncertainty.
But after a chaotic couple of years in Westminster, there’s optimism that the UK could be set for some stability.
A Labour government elected with a sizeable majority means there’s a much lower risk of a sudden change of political direction, and that’s one less thing to worry about for investors.
This isn’t personal advice or a recommendation to invest. Remember, all investments and any income they produce can fall as well as rise in value – you could get back less than you invest. Yields are also variable and no income is ever guaranteed. If you’re not sure an investment is right for you, ask for financial advice.
Look on the bright side
The UK economy is posting some decent growth, with GDP rising by 0.7% and 0.6% in the first and second quarter of 2024.
Services, and in particular, the IT industry, legal services and scientific research have led the way over the period.
Investors in the UK stock market have also enjoyed some decent returns so far this year. The FTSE All Share index has delivered returns of 11.29%*, with the average fund in the IA UK All Companies, UK Equity Income and UK Smaller Companies sectors delivering performance of 10.86%, 11.74% and 12.65% respectively. Past performance isn’t a guide to the future.
There’s still value on offer
Companies listed in the UK have traded on a discount to their international peers for a number of years. And despite its recent good run, the UK is still out of favour with a lot of investors.
The UK stock market trades on a price-to-earnings (PE) ratio of 11.7, offering better value than the 14.1 ratio for Europe (excluding the UK) and 21.0 for the US and Canada.
We think there’s still lots to like about investing in the UK stock market, and attractive valuations are a great starting point. It’s also still one of the highest-yielding stock markets and we expect it to stay an attractive market for income-seeking investors.
A look at our three funds to get investing in the UK
Investing in these funds isn’t right for everyone. You should only invest if the fund’s objectives are aligned with your own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, you can use the links to their factsheets and key investor information below.
Artemis Income
Managed by Adrian Frost, Nick Shenton and Andy Marsh, the fund’s management team have over 70 years of investment experience. And we think they’re one of the best in the business and well placed to make the most of UK income opportunities.
The fund invests in companies they think can pay a sustainable income through the market cycle, no matter how well the economy is doing. These tend to be businesses with lots of reoccurring revenues.
This increases the chance they can retain and grow their customer base, profits, and therefore dividends over time, although nothing is guaranteed.
They mainly invest in large UK businesses, but will invest in some medium-sized companies when they find great opportunities.
This is a more conventional, core UK equity income fund which could work well alongside other investments as part of an income-focused portfolio or could complement other regional equity income funds.
The fund takes charges from capital, which can increase the yield, but reduce the potential for capital growth.
Aug 19 – Aug 20 | Aug 20 – Aug 21 | Aug 21 – Aug 22 | Aug 22 – Aug 23 | Aug 23 – Aug 24 | |
|---|---|---|---|---|---|
Artemis Income | -11.63% | 28.46% | -0.68% | 5.69% | 22.57% |
FTSE All Share | -12.65% | 26.95% | 1.01% | 5.23% | 16.98% |
IA UK Equity Income | -12.43% | 31.42% | -2.86% | 3.85% | 18.32% |
Liontrust UK Growth
Anthony Cross, Julian Fosh, Matt Tonge and Victoria Stevens employ the tried and tested economic advantage investment process which has served investors well over the years.
The managers think the secret to successful investing is picking out companies with a sustainable edge over the competition. They believe this will allow them to earn above-average profits over the long term.
Given their long-term time horizon, the managers believe the initial price paid is less important to overall returns than the company's ability to grow earnings and profits.
They believe the hardest economic advantages to copy are intellectual property, like patents and trademarks, strong distribution channels and significant repeat business.
A company must have at least one of these attributes before it's considered for the fund.
The fund's quality focus means we expect it to lag the broader stock market when it's rising quickly, but to hold up better when markets fall.
The fund could work well alongside other funds investing in unloved UK companies with recovery potential. We think the team have a range of expertise and their stock picking skills have the potential to drive returns in the future.
The managers can invest in derivatives and smaller companies, which adds risk. Please note, the fund has an investment in Hargreaves Lansdown plc.
Aug 19 – Aug 20 | Aug 20 – Aug 21 | Aug 21 – Aug 22 | Aug 22 – Aug 23 | Aug 23 – Aug 24 | |
|---|---|---|---|---|---|
Liontrust UK Growth | -8.76% | 23.57% | -1.43% | 4.88% | 13.31% |
FTSE All Share | -12.65% | 26.95% | 1.01% | 5.23% | 16.98% |
IA UK All Companies | -8.96% | 32.27% | -10.52% | 3.80% | 16.51% |
Royal London UK Smaller Companies
Lead manager Henry Lowson has spent his entire investing career focused on analysing UK higher-risk small and medium-sized companies.
He and deputy manager Henry Burrell aim to deliver long-term growth by investing in some of the smallest companies in the UK stock market with plenty of growth potential.
Smaller companies typically have more room for growth than larger ones, though they’re more volatile and higher risk.
The managers aim to invest in financially resilient, quality, growth companies trading at attractive valuations, and with the ability to survive or thrive when times get tough.
With less research focused on this part of the market compared to larger companies, the managers aim to use their experience to uncover hidden gems.
With interest rates expected to fall further this year, we think smaller companies funds like this one could be set to benefit.
The fund could add diversification to the UK portion of a more adventurous portfolio, or one focused on larger, more established businesses. Its growth focus could also complement other investments in out-of-favour value companies.
Aug 19 – Aug 20 | Aug 20 – Aug 21 | Aug 21 – Aug 22 | Aug 22 – Aug 23 | Aug 23 – Aug 24 | |
|---|---|---|---|---|---|
Royal London UK Smaller Companies | 7.07% | 52.10% | -31.84% | -7.39% | 19.15% |
FTSE Small Cap ex ITs | -7.19% | 71.45% | -19.57% | 1.86% | 24.12% |
IA UK Smaller Companies | 3.54% | 53.30% | -27.43% | -6.38% | 18.83% |