A new dawn for UK asset classes?

Since the end of the Covid-19 pandemic, UK equities have struggled. However, the tables are turning, and an improving outlook for the UK economy has boosted the prospects for UK asset classes.

“The backdrop in the UK has changed positively: real incomes are set to accelerate, GDP is being upgraded and consumer confidence is trending upwards – all of which help domestic earners, which are the backbone of the small and mid-cap indices,” said Georgina Hamilton, Fund Manager, UK Value Team, at Polar Capital. 

“We believe there is tremendous value in FTSE 250 companies, as shown through 6% of the FTSE 250 by value being bid for already this year, at a 40%+ premium,” she added.

Federated Hermes also believes that the improving outlook is providing a substantial boost to UK small-cap companies. “These companies earn a greater proportion of their earnings from the domestic economy than their large-cap peers, and have higher weightings to cyclical sectors such as industrials and consumer discretionary,” opined David Stormont, Portfolio Manager, Small and Mid Cap, at Federated Hermes. “In previous cycles, we have seen robust outperformance of UK small-cap companies over large-cap in periods of recovery and economic expansion,” Stormont added.

Meanwhile, investment boutique TwentyFour makes the case for UK Fixed Income. “While a handful of data points are unlikely to shift sentiment dramatically, a continuation of the trends we observe would strengthen the case for more comfortable and serious allocations to UK fixed income; that could accelerate the unwinding of the incompetence premium attached to UK assets and fixed income over recent years,” said Jack Daley, Portfolio Management at TwentyFour.