Amid the escalation of the trade war, some market commentators feel we could be nearing the end of a 15-year period of US dominance, which has led to America making up around 75% of all global equity market capitalisation — and that the UK could benefit.
Since Christmas, the UK’s FTSE All Share index has outperformed the US S&P 500 stock index by about 10%.
Over the past 30 years, the typical UK investor has likely seen their UK exposure fall from circa 25% to somewhere more like 5% (closer to the UK’s global market weight, which is about 3.5%).
That’s been a rational and profitable move as other markets — especially the US — have fared better than ours.
But with the UK equity market much cheaper than its US counterpart and paying 3.4% in dividends each year, Newspage asked experts whether now is a good time to reconsider “home bias” and back the UK equity market again.
Faisal Sheikh, managing director at Monmouth Capital said, “Back in the 1980s and 1990s, most portfolios held excessive exposure to UK equities.
“It was right to unwind that in favour of global portfolios. After all, why shouldn’t you benefit from great businesses around the world? That logic still stands. Right now, we think the US is historically overvalued and many other markets are fairly valued, maybe even cheap, including the UK.
“Most ordinary investors will find that the percentage of their portfolios in US equities has crept up over the past decade as American tech stocks have roared ahead. The next ten years might be very different, however.
“It could be a smart move to take some of those gains and put them towards what is still an unloved and therefore cheap market closer to home. It may be time to resurrect home bias and back UK equities again.”
Gabriel McKeown, head of macroeconomics at Sad Rabbit said, “Many UK investors have significantly reduced their domestic equity exposure over the past three decades, whereas valuations in the US have remained historically elevated.
“However, this recent performance shift has raised questions about whether the UK now presents a more compelling risk-reward balance for long-term investors.
“Although the FTSE lacks the high-growth technology giants that have propelled US equities in recent years, this could actually serve as an advantage in an environment where value and stability are increasingly in demand.
“Our in-house research found that the sentiment amongst professional investors and institutions is currently neutral towards the UK, in line with the wider European markets, however within our global Sad Rabbit model portfolio, we currently hold a 13.5% UK equity allocation, which has increased from last year, reflecting the significant discount of FTSE companies, offering a compelling entry point for investors seeking undervalued opportunities.”
