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Executive summary
- The UK has navigated significant reform since the thwarted ‘gunpowder plot’ of 1605. Profound distinctions can be drawn between macro indicators, markets and defence spend.
- Political turmoil in the UK has subsided since the “Trussenomics” era, but the market is still longing for clarity under the nascent conservative leadership.
- Resilience has prevailed in large cap UK assets, which is the best performing asset class year-to-date amongst global indices.1
- Inherent ‘value’ characteristics have buoyed UK large cap returns. However, these returns are concentrated amongst a modest selection of individual FTSE 100 constituents, providing opportunities for fundamental, active managers.
- Despite strong relative returns, the UK is trading on its lowest forward P/E ratio vs global markets on record.2
- The UK continues to offer a healthy dividend yield, where sterling weakness is providing a tailwind.
- Real returns for UK small-and-mid cap businesses have outstripped that of all other UK asset classes over the last 20 years.1
- The current period of relative small-and-mid cap underperformance vs the broad UK market exceeds that of the Covid-19 pandemic, Brexit, and indeed the Global Financial Crisis.
- Indiscriminate selling pressure has led to a de-rating of FTSE 250 stocks, now trading 30% beneath their long term average.3
- Fundamentals remain strong in many small-and-mid cap businesses, which are exposed to structural growth trends. Weak sterling increases the value of overseas earnings and the prospect of enhanced M&A activity.
- By investing in quality businesses in strong cash positions, we believe that compelling opportunities are presenting themselves amid small-and-mid cap markets.
The political turmoil that led to the collapse of the Liz Truss government is perhaps where some may draw closer comparisons to the events leading up to 1605. Whilst Fawkes chose to adopt radical measures to instil political change, Liz Truss was subjected to a Tory revolt.
Sources
1Source: Morningstar, as at 31/10/2022
2Source: FTSE Russell, Factset, HSBC, as at 30/09/2022
3Source: Bloomberg as at 31/08/2022.
Regulatory information and risk warnings
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested. The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice. This document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this [document], or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited. The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns.
The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information. The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice. Please note the information within this report has been produced internally using unaudited data and has not been independently verified. Whilst every effort has been made to ensure its accuracy, no guarantee can be given. Some of the information provided in this document has been compiled using data from a representative account. This account has been chosen on the basis it is an existing account managed by Martin Currie, within the strategy referred to in this document. Representative accounts for each strategy have been chosen on the basis that they are the longest running account for the strategy. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought.
The information provided should not be considered a recommendation to purchase or sell any particular strategy/fund/security. It should not be assumed that any of the securities discussed here were or will prove to be profitable. Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.