Should you invest in UK equities?

Should you invest in UK equities?

UK equities used to be the core of any Briton’s investment portfolio. In the 1980s and 1990s, they were highly sought after  – Britain had a booming economy, the stock market was deregulated, many state-owned companies were privatised. The popularity of UK equities continued into the early 2000s, with the London Stock Exchange attracting international investors and becoming a global financial hub.

Then came a series of setbacks. First was the global financial crisis of 2008, which led to a significant decline in stock markets around the world. Then, in 2016, UK equities faced a new challenge in the form of the Brexit referendum. The decision to leave the European Union created uncertainty and market volatility, prompting some investors to reduce their exposure.

In 2020, the COVID-19 pandemic led to technology stocks leading the charge – and area under-represented by UK firms – and investors turned their back on the ‘Jurassic Park’ of stock markets preferring more popular US stocks instead. Then, in 2022, souring inflation,  rapidly rising interest rates and a stagnant economy caused a cost-of-living crisis and introduced even more volatility into the stock market.

But are investors right to still be shunning UK equities?  The UK stock market is still home to some world-leading companies and UK equity fund managers have become extremely adept at finding good opportunities.

Here are five reasons why it might still be an attractive option:

1. One of the benefits of investing in the UK stock market is that it has a well-established and robust regulatory framework for financial markets, ensuring investor protection and transparency.
2. And while technology may not be a huge industry, the UK equity market does provide exposure to a wide range of sectors, including finance, healthcare, energy, and consumer goods.
3. It also has a strong history of dividend culture. Many UK-listed companies have a consistent track record of paying dividends, providing investors with a regular income stream. During periods of low economic growth, these dividends can play a crucial role in boosting total returns.
4. Investing in your home market can also bring some comfort as investors are familiar with the businesses and news about the companies and their prospects is more accessible and prevalent.
5. It’s also worth remembering that the UK equity market offers access to numerous multinational corporations with global operations. Investing in such companies allows investors to benefit from international growth prospects while still being exposed to the stability and regulatory framework of the UK market.

Searching for opportunities

While researching the hundreds of different companies on the UK stock market might be a bit much for the average person, a professional fund manager can do this for you. They can pool your money with that of other investors and invest it in a number of different businesses they think can do well over time.

UK equity funds come in many shapes and sizes. Some will invest only in larger, multi-national companies, while others will focus on the UKs smallest businesses, hoping to invest early in their journey and benefit from their growth. Some UK equity funds will focus solely on making your capital grow while others will also look to produce a regular income from dividends. And not all UK equity funds will search out quality companies that offer stability  – opportunities can also be found among those that have suffered a setback, but where long-term prospects look good.

Here are five different UK equity funds to consider:

1. AXA Framlington UK Mid Cap fund focuses on medium-sized companies, but its manager will be pragmatic about including select opportunities from the smaller companies space too, as well as letting winning mid-cap holdings grow into larger-sized companies.
2. CT UK Extended Alpha invests primarily in large UK companies, but with an unusual approach. As the name suggests, the manager aims to extend investors’ potential returns by buying stocks he expects to do well and also looking to make money on stocks he expects to do badly (shorting).
3. IFSL Marlborough Special Situations is run by one of the best small-cap boutiques in the country. The fund has a small and mid-cap focus, and the investment philosophy is premised upon the fact that smaller companies tend to outperform their larger counterparts over the long term.
4. Schroder Recovery fund aims to deliver attractive capital growth by investing in companies that have suffered a severe business or price setback, but where the long term prospects are good.
5. TM Tellworth UK Smaller Companies is a pure smaller companies fund run by two very experienced and highly regarded managers. It focuses on smaller companies, avoiding micro-caps and mid cap stocks and meeting company management is integral to the investment process.

There are plenty of great opportunities to be found among UK-listed companies, especially  for fund managers that focus on stock picking.