'Confidence will return to the UK market'

Speaking in the latest FT Adviser Talking Point video, which is worth 30 minutes of CPD, Tedder notes that, while the UK has been unloved by investors for quite some time, owing in many parts to how it is perceived as a legacy market and not being innovative enough, the UK had many world-class companies that can compete on a global basis, despite the poor valuations.

He says: “It’s a market that has a high dividend yield, and generally has good capital discipline. And you could argue that things like governance and accountability are best in class on a global basis in the UK. 

"There is no doubt traditional sectors like energy, mining and banks...are dominant in the UK. They're a big chunk of the index.. and they aren't high growth areas. They're cyclical areas, they're commodity areas...and the argument is, they don't deserve a high valuation. 

“But you can turn that around and say, actually, these are in many cases, world class companies... and they generate a lot of cash through the cycle. And they're very well funded. And now they're trading on multiples that are so far below global averages."

I think we're gonna see this polarisation between the innovators and the guys who are catching up and prepared to invest, and the ones that are asleep at the wheel.Alex Tedder, Schroders

Tedder adds the whole UK market was trading on roughly 10 times forward earnings for four and a half per cent dividend yield. 

He says: “It's just too cheap for what you’re getting and those are the largest companies in the FTSE. You've got 1,800 other listed companies, of which there are a number that are genuine world-class and can compete on a global basis, or if they're domestically oriented, actually have strong footprints.”

Tedder notes that diversification is going to be much more important for investors.

He says: “We feel quite strongly that in this environment of higher finance costs, and an economy that globally is evolving very rapidly, there will be many other opportunities in other markets, and more dispersion. 

“So it won't just be the big, big names that do well within sectors. There'll be a lot of dispersion between that, and particularly those companies that innovate and adopt the new technology. And that's across a whole spectrum of industries, not just technology. 

“When those companies adopt the new technologies, they're going to do well. And when they don't, they're really going to suffer in the next 10 years.