Feature – UK equities
particular interest to investors. “Pharmaceuticals will be relatively attractive in the short term. Retail is going to be smashed in the short term but when this all boils over retail is going to reach the point where it is valua- ble to investors,” Mason says.
Retail is going to be smashed in the short term but when this all boils over retail is going to reach the point where it is valuable to investors. Neil Mason, Surrey Pension Fund
source of return and is less volatile,” she says. Mogford looks back to the crash of 2008 as a precedent to the current turmoil and recalls that there were sparks of hope amid the market darkness. She notes that the last time the FTSE All Share cut its dividend distribution was in 2009 when several companies stopped returning cash to shareholders.
Where to look
Despite the convulsions markets went through, Mogford says that the overall experience for a UK investor in the income market was a positive one, particularly for those fund manag- ers with strong eyes on companies that could afford to pay their dividends through market volatility. “We went into this with the UK market looking cheap, it’s now looking cheaper,” Mogford comments, adding: “For those cli- ents who have the potential to increase their allocations to eq- uities now we’d certainly see the UK market as an attractive place to allocate capital.” Mogford says there has been a rise in client interest in allocat- ing to the UK with some considering moving from an under- weight position to a neutral or even overweight one because of the valuation gap. Neil Mason agrees that certain UK sectors seem more attrac- tive when glimpsed through the mirror of such once-an-epoch events. He singles out pharmaceuticals and retail as being of
40 | portfolio institutional April 2020 | issue 92
Indeed, one major institutional investor announced its inten- tion to increase its exposure to the UK even before the virus made asset valuations more attractive. Norway’s sovereign wealth fund, which has £750bn under management, said it would continue to invest in the UK after it left the European Union, stating, that as a long-term investor, it is not concerned by short-term political decisions. The fund has various exposures to the UK economy, including a 200-strong property portfolio, including a share in London’s Regent’s Street, more than £5.5bn of government debt and eq- uity interests in around 400 companies, which include Marks & Spencer, Sainsbury’s, Barclays and BP. So with valuations improving we await to see what catches its decision-maker’s eye. Yet at the time of writing the overwhelming feeling is one that markets hate above all: uncertainty, with a feeling of cliff-edge precariousness to all equity markets at the moment. But UK markets have fared notably poorly because of the kind of stocks which dominate their indices. Yesildag says that UK-listed equities have underperformed oth- er major markets due to the weak performance of energy and mining stocks. “Looking ahead, much will depend on the evo- lution of the crisis and the response, locally and globally,” he adds.
What then can be inferred about the future of pension schemes and UK equities? Appropriately, given Coronovirus’ genesis in China, Yesildag echoes Zhou Enlai: “It really is too early to tell what will happen as conditions gradually improve, which may be a year away.”
No change
Whatever happens it seems likely that the lessons pension schemes will learn from the crisis will be the obvious ones of focusing even more on diversification and portfolio resilience. “In the near-term, we don’t think that the true bottom has been reached yet so, while some degree of partial rebalancing may be warranted, we don’t yet recommend a full balance,” Yesild- ag says. Yet for all the uncertainty and market chaos, the trend for pen- sion schemes to scale back their exposure to UK equities is too strong to be knocked out of shape by the Coronavirus crisis. Mason says that the rebalancing of the equity portfolio towards global assets that Surrey Pension Scheme started 18 months ago remains its strategy. “We still expect to do this, irrespective of capital markets,” he adds.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44
