We’re barely into 2024 and the commentators are, with some justification, turning a critical eye to the UK equity market once again. The FTSE 100 marked its 40th birthday in early January, inviting all manner of takes about its underwhelming performance versus the likes of US-listed stocks over time. As Susannah Streeter, head of money and markets at Hargreaves Lansdown, put it, the index “hit middle age with a confidence crisis”, even if it also retains its positive traits (such as income generation).
As with some other relatively unloved markets (think Europe for one), it’s easy to assume that the UK market will continue to underwhelm, or offer little in the way of interesting, dynamic companies. But such perceptions, if they become ingrained and widespread, can offer up some good opportunities for stockpickers.
It’s with that in mind that I observe how, in a 2023 once again marked by the fierce outperformance of US tech, some UK equity funds with a value bias quietly posted huge gains. Ninety One UK Special Situations (GB0033063636) made an enormous 27.4 per cent total return last year, with Artemis UK Select (GB00B2PLJG05) up by 19.1 per cent, Man GLG Undervalued Assets (GB00BFH3NC99) up 16.2 per cent and Schroder Recovery (GB00B3VVG600) up 13.1 per cent. It won’t match the meteoric rise of a position in Nvidia (US:NVDA) over the same period, but it’s still a very chunky return.
Fund returns aren’t always simple to unpack, but Ninety One UK Special Situations does have one clear winner, with a 7.9 per cent position in Rolls-Royce (RR.) at the end of November. Other notable positions include Cairn Homes (CRN) and Next (NXT), while in sector terms the portfolio has big exposure to the consumer discretionary, financials and industrials spaces.
The Artemis fund, meanwhile, has decent stakes in BP (BP.), Shell (SHEL) and the gravity-defying private equity play 3i Group (III). It more generally has chunky exposure to financials and consumer discretionary stocks. The Man GLG fund is also fairly heavily exposed to financials, although its top holdings also include mainstays such as GSK (GSK).
Value investing has generally been a tough gig over the past decade, but these funds have offered investors some respite at critical moments – including during the tough conditions of 2022, and amid some of the market rotations of the pandemic years.
Not all of the value-minded funds have had such a good run, however, with funds such as M&G Recovery (GB0031289217) making little progress of late.
Whether the hot streak can continue for the winners is also in question. The concerns about the UK economy that preoccupied so many minds in 2023 haven’t gone away, especially given the fact that interest rate rises can have something of a delayed effect, and perhaps this will continue to weigh on UK-listed stocks even if they have more of an international bearing.
However, concerns about the UK market being moribund and underwhelming might be overdone. And after a period when returns were again overly reliant on a handful of US stocks, it’s good to see that diversification (by region, and by style) is still paying some rewards.
