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FundCalibre’s Black Friday potential investment ‘bargains’

26 November 2020

This Friday is “Black Friday” and, while the UK is still in lockdown 2.0 and many high street shops are closed, online retail is well and truly open, enticing consumers with bargains galore.

With little else to do in the evening or over the weekend, almost half (47%) the UK population intends to shop over this period, with the average shopper spending about £290*.

But what about investors? Are bargains on offer for them too? With the likes of the US, Chinese and Japanese stock markets having recovered from the COVID crisis and reached new highs, you could be forgiven for thinking that assets have become expensive again – but that isn’t the case.

Here, FundCalibre highlights four cheap areas still to be found. FundCalibre’s assessment of the funds mentioned can be found on the FundCalibre website.

1. The UK

Due to ongoing Brexit uncertainty and the make-up of its constituents (oil and bank-heavy, tech-light), the UK stock market remains unloved, under-owned and under-valued – even after the ‘vaccine rally’.

However, according to Rathbones’ Alexandra Jackson, the last time the UK market was this cheap compared with the rest of the world, it went on to beat the global benchmarks over the next twelve months. Overseas companies are starting to take advantage of cheap stock prices by making cheeky bids for UK plc at rock-bottom prices. But will UK investors also pick up a bargain?

Funds to consider: AXA Framlington UK Mid Cap & Fidelity Special Values

2. European Smaller Companies

Investors have been getting rid of their European smaller companies holdings all year. The sector has been in net redemption since January**, despite the having been consistently one of the better performing areas over the past 3, 5 and 10 years.

While larger stocks in Europe have been driven higher by structural herding, small and mid cap stocks are the cheapest they have been relative to large caps since 2002***. There are more than 5,000 companies from 25+ countries in this asset class, so the opportunities are vast. It tends to be under-researched – but this just means that a good fund manager can really add value by identifying the big winners.

Funds to consider: Jupiter European Smaller Companies & T. Rowe Price European Smaller Companies Equity

3. Property

Commercial property in the UK has been hit hard by a combined force of Brexit concerns and Covid. However, Dr Niall O’Connor, manager of Brooks Macdonald Defensive Capital, says that while property is out of favour, the yields available in the sector are very attractive for income investors – more than 6% in some cases.

“We have stress-tested a number of REITs (Real Estate Investment Trusts) to see what could happen if rents fall significantly – looking for a ‘new normal’ income stream,” he said. “A number are still rewarding, even under potentially difficult scenarios, paying a healthy income for a relatively small amount of risk. We’re not going anywhere near the retail space, but multi-lets and student property look appealing.”

Funds to consider: TR Property Investment Trust & Premier Pan European Property Share

4. Latin America

Latin America has been hit hard by the Covid pandemic and fell considerably more than broader emerging markets during February and March. It has also as yet failed to recover: the MSCI Emerging Markets Latin America Index is down almost 24%^ year to date, while the broader MSCI Emerging Markets index is up almost 10%^ – led by emerging Asia.

As such, South America is cheap, but could also benefit from a potential global recovery and a more coherent and consistent foreign policy from the US now we are likely to see a change in leadership.

Funds to consider: ASI Latin American Equity & JP Morgan Emerging Markets Investment Trust

*Source: TopCashBack survey of 2,002 adults in the UK
**Source: Investment Association net retail sales
***Source Downing, Credit Suisse Holt data as at 27 July 2020
^Source: FE Analytics, total returns in sterling, 31 December 2019 to 18 November 2020

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested.

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