It is always a pleasure to spend time in the company of Messrs Neil, Nelson and Forsyth. True to form, an evening of lively dialogue, in a packed auditorium at the Royal Institute of British Architects, discussing the implications of the chancellor’s spring statement last week, did not disappoint.
Prior to the event I have to admit to being a tad gloomy. This had less to do with the cold I was nursing, and more to do with a call I received recently from a broker friend of mine. He told me that one of his clients, running a multi-billion dollar global equity fund out of New York, had just sold his last remaining UK equity. Hardly music to the ears of an UK equity fund manager.
My rather sombre mood, however, gave way to a greater degree of optimism following the results of an online Twitter poll, the results of which I announced on the night of The Spectator’s post-spring statement event. The question posed was as follows: ‘Ahead of next week’s spring statement, do you believe that this could be the right time to invest in the shares of UK-listed companies?’ 54% of respondents declared: ‘Yes, it’s a great time!’. 20% appeared undecided, with the remaining 26% concluding, in no uncertain terms, that investing in UK equities was definitely not for them.
To use stock market punditry, the two contrasting views of professional investors who, on the one hand, appear largely negative on the prospects for UK equities, and the more positive views of private investors, on the other, is what makes a market. But who is correct? Is the UK uninvestable or not?
A look under the economic bonnet of UK plc reveals not all is doom and gloom. Employment levels are robust, the health of the service industry, contributing over 75% to the UK economy’s GDP continues to tick along nicely, and investment levels, which fell sharply following the uncertainty surrounding the Brexit vote, have started to recover gradually.
Inevitably, the political noise-grabbing media headlines over Brexit and its perceived consequences have prompted international investors to seek an alternative home for their money. With the global economy enjoying synchronised growth and, more importantly, company profitability recovering, there are plenty of investment hot spots from which to choose. The UK stock market, so it seems, is confined to the category of Cinderella markets… for now.
And yet, as investors, we have to ask ourselves how much of the uncertainty is already discounted in share prices? As I write, the UK stock market trades at a discount to the majority of its international peers, most notably France, Germany and the US. For those who believe starting valuations are the key to future long-term returns, that should be encouraging. As a long-term investor, my overriding philosophy is that the time to buy is when stocks become unloved.
There is one additional point I’d like to make. The share price fluctuations that we have seen in stock markets of late are a welcome addition to the life of the active fund manager. Last year it was this lack of volatility which was truly abnormal. A return to more ups and downs is to be welcomed as evidence that we are normalising after the extended period of central bank largesse post-financial crisis. Researching companies, meeting with management, and re-researching them means that when times are tough, and companies out of favour, the savvy investor can pick-up veritable bargains. We may not be the most loved market place in the world… but, in my humble opinion, there are still good buys to be had.
Richard Buxton is chief executive of Old Mutual Global Investors and manager of the Old Mutual UK Alpha Fund