Analysts and fund managers are optimistic on the prospects for “unloved” and “cheap” UK companies on a longer-term view, with the market set to benefit from pent-up demand and cyclical stocks in any global economic recovery after the coronavirus crisis.
Kevin Boscher, chief investment officer at Ravenscroft, said: “The combination of extremely accommodative domestic and global monetary and fiscal policies, an undervalued pound, pent-up demand and improving sentiment will eventually lead to a powerful economic and earnings recovery.
“UK markets will also benefit from a powerful recovery in global economic activity with the more cyclical-oriented sectors expected to participate as well. UK equities and sterling look cheap on both an absolute and relative basis with much of the bad news already likely discounted.”
Darius McDermott, managing director at FundCalibre, agreed. He said the UK was the “dark horse” of equity investing as it was unloved by “pretty much everyone”.
He explained: “The outlook is uncertain, the market is unloved and pretty much everywhere else in the world looks a better investment.
“But we have some great companies and the winners will emerge very strong. Good stock-picking, as ever, will be important. Brave investors at this point may well be rewarded over the long term.”
The backdrop
Investors have fled the market this year as the country’s handling of the coronavirus crisis, the dividend drought and uncertainty over Brexit deals shook shareholder confidence.
For example, Helen Bradshaw, Quilter’s income manager, moved funds out of the UK during the crisis while Thomas Rostron, chief investment officer for Embark’s multi-asset fund range, said he had reduced the funds’ exposure to the UK to invest in other equity markets.
Meanwhile Craig Rippe, head of multi-asset at Canada Life Asset Management, said the pandemic had pressed fast forward on several trends in the investment industry, including the move away from ‘home bias’ and the general shift from the UK market.
And the proof is in the figures: investors pulled more than £1.5bn, according to Investment Association data, from funds in UK sectors from May to July.
By comparison, the Global sector saw three months of inflows as investors plunged their cash into global funds – heavily exposed to the US – to the tune of £2.5bn.
The UK has lagged other markets in terms of performance for some time, but particularly in the aftermath of the coronavirus-induced market crashes.
