I recently talked a little bit about deals, noting that 'the old mantra of "price is what you pay and value is what you get" is still hugely relevant. In terms of price or relative value then the UK market does rather stand out at the moment. Elsewhere, I even used a chart in a presentation recently that showed that UK equity performance was at a fifteen year relative performance low against even Eurozone equities. Kind of embarrassing!...
Of course the immediate reaction is that this is all to do with Brexit. Naturally - as a single issue - this rather falls apart when you are comparing and contrasting UK equities with those in the Eurozone, an area which would also be impacted by let us say a fall in trade. Possibly not as much as the UK, but a fall nevertheless. No, the issue in terms of headline performance is much more about mix. I know the perception is that the Eurozone bourses are chockablock with financial stocks, but if you look at the split today the weighting of some of the more technology or WFH/Covid era-friendly sectors is much higher than in the FTSE 350. And we all know what happens after a period of poor performance: many investors anticipate more poor performance.
This is why if you look at the world's most 'respected' fund manager survey, UK equities are about as out-of-favour as you can get. Tom W and I discussed this a few weeks back, as recounted in a frankly interesting PrimaryBid opportunity. You can make your own minds up, but I see in the press an article noting that 'executives at private equity giant Apollo had drawn up a list of 250 bid targets amid the Covid-19 turmoil'. Now this is something all opportunistic private equity companies (and frankly all opportunistic investors) do. So far though it has been wholly unsuccessful as seemingly Asda and William Hill (WMH) are slipping through its fingers. The way private equity works though, cash burning a hole in the pocket will not satisfy for long. Expect something sooner rather than later.
Naturally, it is pointless to try to anticipate targets as a bunch of FTSE 350 names - for example Smith & Nephew (SN.) - have been perennial bid targets. Personally if I had cash to burn I would consider a DS Smith (SMDS) or a Whitbread (WTB) or - as just discussed - Biffa (BIFF) but frankly I would be talking my own book. From a practical perspective, don't be shy of having an overweight position in UK equities – and I say that as someone who has been a global investor both institutionally and personally for a generation now.
Filed under: UK equities, [email protected] Capital, Ariana Resources, BigDish, Eurasia Mining, Cake Box
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