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Tap-in opportunity for active investors lies in UK equities

Yasmine Masi15 May 2024
global private debt AMP fund

New analysis from Principal Asset Management (Principal AM) has highlighted the unique opportunities for active investors in UK equities, with the majority of UK-based multinational companies deriving their revenue from offshore sales.

Scott Leiberton, Managing Director and Client Portfolio Manager at Principal AM, said investors should not be deterred by local economic weakness, but instead recognise the strengths in the UK’s leading companies being multinational and gathering the majority of their revenue from overseas sales.

“Over the past 20 years, the weight of U.K. stocks as a share of the global equity market has slid by more than two-thirds, now standing at less than 4%. The 2016 Brexit referendum only worsened the UK’s equity position, and since, broad market returns have significantly lagged global peers,” he said.

“With a weakening currency, complex pension framework, and stamp taxes on trading frustrating local and foreign investors and further discouraging equity exposure, the challenged backdrop has even inspired some U.K. companies to relist their shares in the U.S.

“However, despite this cautionary macro backdrop, the UK remains home to many of the world’s most competitive global multinational companies that conduct significant business outside the UK. In fact, among the largest 100 UK-listed companies, over 70% of their total
revenues are derived from foreign sales.”

Leiberton said these “multinational leaders” based in the UK can offer investors strong global growth opportunities.

“These companies are trading at historic valuation discounts [and] the weakness in exchange rates has enhanced the export pricing competitiveness of many of these companies, adding to their appeal,” he said.

“For investors, active management could be key to navigating and capitalizing on these unique opportunities. The current landscape offers a chance to unlock value among strong multinational companies, making this a compelling time to consider select U.K. equities within international/global equity portfolios.”

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