Time to invest in cool Britannia’s brighter outlook
AS THE annual Isa season draws to an end, top fund managers are urging investors to buy British because some of the best investment prospects in the world can now be found at home.
The UK stock market has fallen out of favour with global investors amid the uncertainty of the last 18 months, with the US, Europe and emerging markets performing far better. However, British stocks now look set to swing back into fashion.
Schroder Income Growth Fund manager Sue Noffke said UK shares have rarely been as unfashionable as they are now, but investment fashions quickly change and investors have a great opportunity to take advantage of low current valuations.
She said the uncertainty about the country’s trading relationship with the EU has unnerved investors, but added that it has been overdone: “I can see bright spots in the UK stock market that now offer investors a decent balance of risk and reward.” TRANSITION TIME Worries over the impact of Brexit on the UK economy have pulled down share prices, but the impact should fade as the danger of a disorderly break from the EU appears to be shrinking, especially after the agreement over Britain’s transition period on Monday.
Noffke said the UK is set to avoid a recession, with GDP growth figures revised upwards and now running closer to 2 per cent a year, far from the disaster many predicted. The pound is also recovering and consumer price inflation appears to have peaked, she added.
Figures published yesterday show inflation falling to 2.7 per cent in February, down from 3 per cent the month before. Noffke said: “Strong employment and reasonable wage growth should start to ease the squeeze on UK household spending, boosting domestic UK stocks.”
Right now many are cheap compared to foreign rivals and she named supermarket giant Tesco, pet retailer Pets at Home and tenpin bowling operator Hollywood Bowl as three British companies whose outlook is set to improve rapidly. COUNTING DOWN The prospect of a resurgent UK stock market will tempt many Britons wondering where to invest their annual tax-free stocks and shares individual savings account (Isa) allowance.
The clock is ticking as this year’s £20,000 allowance, issued on a “use it or lose it” basis, expires at midnight on April 5.
Damien Fahy, founder of personal finance website MoneyToTheMasses.com, said Isa investors can choose from a host of top performing UKfocused funds. Judged over 10 years Slater Growth has been the best performer, returning 349 per cent in that time, he added.
It is followed by Liontrust Special Situations, which grew 283 per cent over the decade, and Royal London UK Mid-Cap Growth, up 258 per cent.
Another way to invest in the UK is to buy a low-cost tracker, such as HSBC FTSE 100 Index or HSBC FTSE All-Share Index, which have minimal charges of around 0.17 a year, or iShares FTSE 100 ETF, which charges just 0.07 per cent a year. Low charges mean you get to keep more of your returns. THINK SMALL Darius McDermott, managing director at online investment platform FundCalibre.co.uk, said February’s stock market dip has made UK shares even better value: “If you are prepared to take on a bit more risk and are investing for at least five years, smaller UK companies could prove the most rewarding of all.”
He said investors withdrew £500million from smaller companies in 2016 and this money has yet to return: “Today’s low valuations make them a third cheaper than blue-chip UK stocks.”
This could be a good buying opportunity for those planning to buy and hold long-term, he added. His preferred smaller company funds are LF Livingbridge UK Micro Cap, Unicorn UK Smaller Companies and Liontrust UK Smaller Companies.