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Is now the time to buy back into UK equities?

1 May 2018

Scott McKenzie, manager of the TB Saracen UK Income Fund has highlighted the UK’s undervalued equity market in addition to the extremely favourable yield of equities relative to gilts, and suggests now is a good opportunity to buy currently unloved UK stocks.

McKenzie says: “Brexit uncertainty means investors have for some time been ignoring UK equities and this has led to a material underperformance against the MSCI World since June 2016. Whilst investors seem to have taken a clear negative view on Brexit outcomes, these are by no means certain at this stage and the recovery of sterling in the past year suggests that currency markets are more sanguine.

“We have seen an exceptional period for growth investing in recent years and we are now seeing some significant value opportunities emerging in certain parts of the UK stock market.  Yet at the moment, no one seems interested in valuation. UK equities are now priced extremely favourably compared to gilts and in fact there has never been a bigger yield gap between the two asset classes since the Second World War. Taken together, there is now an excellent opportunity for value investors in the UK to acquire undervalued shares with an attractive income stream.

“Over the last quarter, we have put these insights into practice and used the ongoing market weakness to strengthen our position across many of the fund’s major holdings.”

McKenzie adds this strategy paid off for Saracen when it sold holdings in electronics company Laird following its takeover by Advent International, having doubled its holdings in the firm days before the bid when Laird’s share price rose 70%

“Our long-held preference for the financial sector, where 30% of the fund’s holdings are concentrated, also continues to deliver solid results with most of our holdings delivering rising dividends.”

 

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