Advisers divided on investing in UK equities

18 August 2017

Investors are likely to receive a mixed response from advisers on the current potential for investing in UK equities (shares in UK listed companies).

Research conducted by financial services provider Aegon, found that over a quarter (27%) of advisers interviewed believed UK equities would generate the best returns over a three to five year period. But a further quarter (24%) viewed UK equities as the most overvalued asset class. The positives drawn from those who believed UK equities would generate the best returns included strong economic fundamentals, exposure of UK companies to global markets, and improvements in Britain’s ongoing Brexit negotiations.

However, those who were most pessimistic pointed to falls in Sterling and the possibility of a market correction due to Brexit uncertainty.

Nick Dixon, investment director at Aegon UK, comments: “There’s a clear split among advisers on the medium-term prospects for UK equities. For our part, we remain overweight to this asset class in our Core and Select Portfolios, which are managed in conjunction with Morningstar. While many developed asset classes look overvalued at present, UK equities feel better value on a relative basis.”

He adds: “Market fundamentals remain broadly unchanged following the vote to leave the EU, despite speculative activity and the recent fall in Sterling. For those that can invest in the medium to long-term the UK market remains attractive, as any short-term uncertainty caused by the nature of future trade deals with the European Union will only partially impact large cap companies, which are more likely to trade internationally.”

Emerging markets popular but gilts out of favour

Looking to other asset classes, the second most overvalued after UK equities was believed to be gilts (government loans) (20%). High valuations due to prolonged quantitative easing (the issuing of more money into the economy) were to blame for the pessimism.

US equities were also believed to be overvalued by 18% of the advisers surveyed, but this was significantly down from a previous study in March, which found 38% believed US equities to be overvalued.

At the other end of the scale, emerging markets proved popular with 22% of advisers believing they would generate the best return in the medium to long term. This was mainly due to a perceived undervaluing of assets compared to developed markets.

The Eurozone was also viewed positively due to improving economic growth, relative political stability and improving earnings data. One in five (20%) advisers surveyed believed the asset class would generate the ‘best return’ for their clients.  

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