by Nick Britton
Nick Britton
We are surely witnessing the worst political situation in the United Kingdom since the Suez crisis. Not my words, those of Lord Rothschild, chairman of RIT Capital Partners, in the investment company’s latest annual results. Not all would agree, of course, but he isn’t the only one to be worried.
As someone who occasionally has to stand up in front of an audience when I don’t feel my best, I sympathise with Mrs May’s predicament in the House of Commons this week. It was painful just to listen to her frail, faltering voice. But it’s not just her, it’s the whole parliamentary machine that is creaking and groaning with the strain of processing an issue as vast, complex and divisive as Brexit.
Above the hubbub, however, the managers of UK equity income funds are hearing another sound – the siren call of valuation.
While no-one knows what will happen with Brexit in the next two weeks, two months or two years, valuations remain something solid and measurable. The fact that UK equities are trading at a 30% valuation discount to global peers – close to a 30-year low – was highlighted by Simon Gergel, manager of Merchants Trust, at an AIC press roundtable this week. Eyebrow-raisingly, Spain, Turkey and Russia are the only major markets trading at lower valuations on a cyclically-adjusted p/e basis.
Sue Noffke, manager of Schroder Income Growth Fund, also brought an interesting perspective. She confirmed that institutional investors have been substantially underweighting the UK since February 2016, but is beginning to see flickers of interest from the likes of sovereign wealth funds, who are finding valuations too attractive to dismiss out of hand. They are well aware, of course, that most of the sales and profits of UK-listed companies come from overseas. In this issue of Spotlight, we bring you views from Simon, Sue and several other value-oriented income managers, including Alastair Mundy of Temple Bar.
One’s view about the attractiveness of UK equities at the moment depends partly on one’s time horizon (hence, the interest from sovereign wealth funds) but also on one’s orientation towards growth or income. For income investors, the UK has become more enticing as yields have climbed – and climbed. Of course, the attractiveness of these yields depends on companies continuing to increase dividends, which doesn’t always happen.
That’s where investment companies come in, and this week, the AIC has released its latest list of dividend heroes, the 20 companies that have increased dividends for at least 20 years consecutively. We present the latest list in Spotlight this month, while Ian Cowie offers some helpful tips on researching these companies using the AIC’s website.
Last, but not least, we have just released dates for our 2019 workshop tour. If you haven’t attended a workshop before, these are friendly, interactive events where we go through the basics of investment companies, talk about how they are used in portfolios, and answer any questions you may have. It all counts as structured CPD and certificates come with those stylish CII and CISI logos.
Nick Britton, Head of Intermediary Communications, AIC
Please click on the links to book your place.
30 April-1 May 2019 Morningstar Investment Conference Morningstar’s flagship two-day conference has a varied line-up of speakers including Jonathan Ruffer (Ruffer Investment Company), Marcus Phayre-Mudge (TR Property) and Nick Britton (AIC).
21 May-20 June Investment trust workshops Providing a comprehensive introduction to investment trusts in a friendly and practical way, the AIC’s workshops have been very highly rated by previous attendees. We are visiting 15 locations around the UK including Birmingham, Derby, Edinburgh, Glasgow, Leeds, Liverpool, London, Manchester, Newcastle and Swindon. See a full list of locations and dates.