UK investors continue to have their patience tested as the clouds overshadowing the FTSE are stubbornly refusing to part.
Since the infamous Brexit vote of June 2016 the headline UK equity indices (the FTSE 100 for the largest businesses, FTSE 250 for mid-sized) have made no progress, but they sure have been volatile over the intervening years – the FTSE 250 is flat over this time but has been 24% down (COVID) and 38% up (post-lockdown excitement) on where we are today. It has been a period where popular media has consistently concluded that the UK is a basket case and politicians have seemingly done their best to make this the case! We have the bruises to show that we have been in the market throughout, but we still believe and we are not throwing in the towel in UK markets – the are plenty of excellent businesses listed in London and rule of law continues to reign. History has taught us time and again that patient and disciplined investment in strong businesses pays off and this time is no different.
Looking at the third quarter of this year, it was all about a rally in the oil price and correspondingly strong share price performance from Shell and BP. For all the theorising that one can do on what moves commodity prices, nothing moves oil like politics and it just so happens that the Saudi Government is looking to sell $50bn of their shares in oil giant Saudi Aramco – coincidence that supply has been limited recently to push of the price? We will let you decide.
Rolls-Royce was a standout performer at +46% in the quarter, boosted by recovering jet engine orders as tourists return to the skies, but do not forget that RR shares are still comfortably below where they were in 2019. At the other end of the spectrum, the largest fallers were asset managers (St James’s Place and arbdn) and betting companies (Flutter and Entain). Since Standard Life Aberdeen changed its name to abrdn in July 2021 the share price has fallen by 45% - possibly management should have been focusing on more important things than their name?
No market is an island and hopefully readers of the report will gain a sense of the importance that bond markets and interest rates have in underpinning equity markets globally. The FTSE is unlikely to make material progress until Gilts stop being beaten up by central bankers. This is not a reason to avoid UK equities, in fact it gives an opportunity to pick up shares in leading businesses at decade-low valuations. Patience will pay-off and, in the meantime, there are healthy divided yields on offer to keep the income coming in.
The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.
Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.