With so much negative news around, is now the right time for us to be investing in UK equities? We certainly believe so, we are backing Britain. There is a significant body of empirical evidence showing that valuation matters. Put very simply, the price you pay for something is a key determinant of future returns. Indeed, the less you pay, the more attractive your return profile could look in the future. UK equities continue to look exceptionally cheap, both relative to other countries around the world and their own history. While it is very easy to paint a very negative picture of the UK market, we see several potential catalysts.
Firstly, it appears that management teams at UK plcs also agree that selling has simply gone too far, and they are buying back their own shares with gusto. According to data from Redburn1, UK companies are buying back around £200 million of shares a day, which equates to £50 billion a year. When executed correctly (i.e. when prices are low), buybacks can be a powerful force for shareholder returns. Secondly, deglobalisation could mean inflation and therefore higher interest rates are a persistent feature over the coming years, as production decisions are no longer based simply on cost. Higher inflation typically favours commodity producers and higher interest rates favour the likes of banks; both are well represented in UK equity indices. Importantly, the UK index also has good representation of healthcare names (e.g. AstraZeneca and GSK) and defensive consumer staples (e.g. Unilever and Diageo), all of which should carry on delivering in a more difficult macroeconomic backdrop.
If this broad macroeconomic view proves correct, then we could be entering a period of lower returns and income investing may once again come to the fore. With UK equities yielding almost twice as much as the global equity index and materially more than almost every other region, it could be a market that comes back into focus.
Equally, these predictions suggest a more volatile backdrop for investment markets and one way to mitigate the impacts of volatility is through adaptability. We believe our Fund’s dynamic investment approach is adaptable, agile and active. We move between growth and value investment styles depending on economic and investment cycles. We believe a combination of the two gives the best opportunity to deliver consistent, attractive long-term returns.
The Mattioli Woods UK Dynamic Fund aims to deliver a combination of capital growth and income, by the active management of a UK equity portfolio over the long term (in excess of five years). The Fund is focused on identifying exciting opportunities in large and medium sized companies, which we define as having a market capitalisation of more than £500 million. Importantly, the managers also have the ability to invest up to 10% of the fund in smaller companies that they believe will be the UK success stories of tomorrow.
Managing our new fund are Chris White and Jonathon Marchant. Chris joined Mattioli Woods in 2020 and brings over 25 years’ experience in the UK equity space, having managed a range of UK equity income mandates. Jonathon has been with Mattioli Woods for eight years and has a broad range of experience, having co-managed the Mattioli Woods Multi-Asset Fund range. Chris and Jonathon have worked closely since 2020, as part of the team managing the Responsible Equity Fund and UK Direct Equity Portfolios within the business.
We remain committed to lowering client costs and investing directly in equities removes third party fund management fees. This means we can manage a portion of our UK equity exposure in our multi-asset proposition for a fraction of the cost. Equally, the Fund is competitively priced, for those wishing to invest alongside our wider proposition, with an estimated ongoing charge fee (OCF) of only 0.65%.
We believe that now could be a great time to take a closer look at UK equities and that our UK Dynamic Fund can provide exposure in a cost-effective manner, with the flexibility to perform in a range of environments.
For more information on the UK Dynamic Fund please contact your Mattioli Woods Consultant.
All content correct at time of writing.
