Finding optimism amongst uncertainty
Post the Global Financial Crisis (GFC) and Brexit, UK equities, specifically the FTSE 100, have been shunned over the last ten years for three key reasons: too value oriented in a post-GFC world that favoured growth stocks; too skewed towards important but slower-growing industries such as banking, energy and healthcare; and too risky due to Brexit. As a result, UK equities have become very cheap relative to the rest of the world – the biggest discount to global equities since the mid 70’s period when the UK was almost bust.
Now all these negatives are becoming a positive:
- Value is at a multi-generational low point and there are huge opportunities to be taken in this area as investors re-discover the benefits of paying a sensible price for a stream of profits and cash flow. Added to this, many recovery stocks are yet to see share price recovery, small caps have lagged badly recently, and many beneficiaries of the reopening of the economy are back to relative lows.
- The business mix of the FTSE 100 is attractive again so that big global leaders with strong cash flow generation and profits are a positive.
With Brexit now in the rear-view mirror, British politics is actually relatively consensual and, with the Labour opposition moving towards the political middle ground, is not a source of significant risk. Overall therefore, coming out of a frustrating 2021 for a Value manager, I see many investment opportunities and reasons for optimism.
The information in this article has been prepared and issued by River and Mercantile Asset Management LLP (trading as “River and Mercantile” and “River and Mercantile Asset Management”) registered in England and Wales under Company No. OC317647, with its registered office at 30 Coleman Street, London EC2R 5AL.
River and Mercantile Asset Management LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 453087) and is registered with the US Securities and Exchange Commission as an Investment Adviser under the Investment Advisers Act of 1940.
This article is directed at professional clients. The information in this article should not be relied on or form the basis of any investment decision.
ES R&M UK Recovery Fund
This fund enables investors to have targeted exposure to those companies we believe to have particularly strong potential to create value, following a period of depressed profits that could enable significant recovery.