UK equities have long been overlooked, but things may be changing. In this episode, The FundCalibre team sits down with Jeremy Smith, manager of the CT UK Equity Income fund, to discuss why international investors are rediscovering value in the UK market. They look at which sectors are thriving, and the role of mergers and acquisitions in reshaping the investment landscape. They also explore the challenge of sustaining dividend income, the impact of economic trends, and whether the UK could be on the brink of a consumer boom.
Why you should listen to the interview: If you want to understand why UK equities are attracting fresh attention from global investors, this episode is a must-listen. Manager Jeremy Smith breaks down market trends, discusses income-generating stocks and reveals why he’s optimistic about the UK economy.
This interview was recorded on 18 March 2025. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
International investors look at the UK
“I have to say in the last sort of 12 months European investors that are looking a bit further afield from their own economies, which are clearly struggling in the largest economies in Europe, like France and Germany. And they’re really attracted by the 10-year low valuation of the UK market against not only their own market, but most particularly well the world market where I think we were trading at a 40-year low.
So yes, there’s definitely more interest not just from institutional investors, but also of course we’ve got activist investors, we’ve got private individuals looking to make money out of buying very cheap UK shares.”
M&A activity in the portfolio
“I think we’re in the 39th month of consecutive outflows from the domestic wealth management industry from their UK exposures. So that forced selling has had a much more material impact lower down the index. So mid-caps, small-caps have seen valuations change really quite materially because on the other, there’s just been effectively more sellers than buyers. And in that vacuum, as I said, we’ve had some institutional buying from European investors and some US value funds. So the likes of Travis Perkins, for example; I think half their shareholder registries US domiciled funds now. The last year was an absolute boom for M&A in the UK corporates and private equity.
“I think of the 14 largest transactions we had, we were involved in nine of them. So, our focus on intrinsic value or fundamental value or however you want to call it, what is it worth someone else? Never mind what it’s worth today. We have a very strict three to five-year investment horizon. And so no matter how much noise there is today in terms of short-term earnings changes, we stay very focused on that long-term value. And that gives us, in this particular environment, quite a competitive edge in terms of having our more than our fair share of bid approaches, some of which, to be honest with you, are not welcome. We rejected the bid for Royal Mail.”
A consumer boom on the horizon
“This sounds very outrageous, but we could be on the cusp of a consumer boom in the UK, which I’m sure most people would laugh at. Look, given the recent headlines, all of the foundations are there for a 1980s-style consumer boom. The housing transactions are running at very low levels. We’ve had nine months of consecutive double digit growth in disposable incomes as measured by the income tracker.
“So the average person in the UK, regardless of the Daily Mail headlines, is in a much better position than they’ve been for donkeys years. And courtesy of covid, courtesy of inflation and certainly double digit national wage rises every year. The bulk of the population of the UK is in pretty good shape.
“The main issue at the moment is consumer confidence, because people are very affected by headlines. The budget in November had a fairly catastrophic impact on people’s willingness to want to spend on big ticket items. So I think, new car sales are at five-year lows, but people are spending on going away on holidays, restaurants, clothing. So, there are avenues where people are spending money.”
Conclusion: UK equities are making a comeback, but challenges remain. As international investors take notice and M&A activity rises, understanding market dynamics is more crucial than ever. Whether you’re looking for dividend income, value opportunities, or insights into economic trends, this interview offers expert perspectives.
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