In terms of potential, the UK market for stock-picking is comparable to the one that followed the Global Financial Crisis. Sue Noffke, Head of UK Equities, and Andy Brough, Head of Pan-European Small and Mid Cap Team at Schroders, share their thoughts.
If the job of stock-pickers is to work out when the market is “mispricing” shares, then there is plenty for those with a focus on the UK to get their teeth into right now.
As investors look beyond events over which they have no control – such as Covid-19 and Brexit – opportunities abound at an individual stock level. Indeed, in terms of potential, today’s market for stock picking is comparable to the one that followed the Global Financial Crisis (GFC).
This is at a time when many companies are looking to the future again and increasing investment. There has been some sensible bolt-on merger and acquisition (M&A) activity and many dividends are being reinstated. Plenty of companies have surplus cash to grow their businesses and reward their shareholders.
Investor confidence in the UK dropped away amid the pandemic. Having briefly re-engaged in late 2019/early 2020, global fund managers retreated back to the side-lines, according to regular investor polls by Bank of America Merrill Lynch.
As a result, UK shares are on track to lag other regions for yet another year. While the gap has recently closed a little following some positive vaccine news, the market is significantly trailing other regions year-to-date.
However, investors observe plenty of stocks whose prices are failing to properly reflect company prospects to sustain and grow earnings over time. Against this backdrop, two Schroders stock-pickers explain how they’re looking at the market heading into 2021.
Sue Noffke, Head of UK Equities said: "The possible reasons for not owning UK shares have been extremely well publicised in recent years. We can currently see this with Brexit and the devastating Covid-19 crisis, which are both top of many investors’ minds.
"The reasons for owning UK shares are much less well-known and have frequently been overlooked. It seems to me that the bad news is crowding out the good. This, in part, explains why there are so many mispriced opportunities at present.
"It’s certainly good to see our optimism affirmed by other large and experienced long-term investors. This is apparent from the resumption of “inward” M&A activity as global deal-making has picked up again.
"The trend of inward M&A had begun to gather pace prior to the global pandemic. We see many indications that it is starting to regain momentum.
"Recently announced deals include a recommended bid for RSA Insurance by a consortium of overseas rivals. Meanwhile, the eponymous owner of Las Vegas’s iconic casino Caesars has seemingly prevailed in a heated contest for gaming group William Hill. This is as two North American rivals vie for control of security group G4S.”
