Buying British stocks: what the experts think
Fresh eye, takeover talk and British stodge
Unloved UK stocks are suddenly all the rage, says Pierre Briançon in Barron’s. The private equity battle for Morrisons – and a rumoured swoop for Sainsbury’s – have sent supermarkets soaring. And there’s a growing sense that the premiums being offered by private equity are evidence that public markets are undervaluing British stocks more broadly.
The UK market has significantly underperformed European and US markets in recent years. And this year the FTSE 100 is up less than 8%, compared to 15% for the equivalent index in Germany, and 20% in France. “Investors, feeling that other markets are now fully valued, may be looking at UK equities with a fresh eye.”
The surge in private equity bids is set to continue, said David Brenchley in The Sunday Times. But there’s also no shortage of attractively-priced UK companies that could tempt trade buyers too. Analysts tip the healthcare, biotech and gaming sectors as ripe for consolidation, while the wealth and asset management sector is another promising area, says investment firm Canaccord. Where should retail investors put their money to take advantage? Canaccord’s Kamal Warraich suggests Liontrust UK Smaller Companies or BlackRock Smaller Companies, while Jason Hollands of Bestinvest likes Threadneedle UK Equity Income, Fidelity Special Situations, and AXA Framlington UK Mid Cap.
It’s not just takeover talk that is driving share prices – it’s a longer-term rotation into unfashionable “value” stocks, said Patrick Hosking in The Times. Take, for example, the Temple Bar Investment Trust, whose share price has leapt 47% since last November (and 19.3% in the six months to June) by holding the unexciting likes of Royal Mail, NatWest, Aviva, BP and Marks & Spencer. The trust’s co-manager Ian Lance reckons the rebalancing away from “growth” to “value” has years further to run, and says UK stocks are at their biggest discount to international stocks in 50 years. Just as “tech-sceptical investors started to pop a few growth stocks into their portfolios as an insurance policy five years ago”, now there’s a good case for investors with “whizzy tech-heavy portfolios to add a side-order of cheap British stodge”.