UK Equities: a renewed perspective

With UK inflation falling faster than many developed economies and the Bank of England’s recent interest rate cut, putting an end to the aggressive tightening witnessed since 2022, combined with the recent landslide Labour victory – this economic and political stability may remove uncertainty for a once challenged market and present a wealth of opportunities for investors.

A further catalyst may be its remarkable affordability, the UK market stands out in valuation terms with substantial double-digit discounts compared to other developed nations (Source: Barclays, 31 May 2024)

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

For professional clients only.

Our case for UK Equities

Luke: Hi, I’m Luke Chappell
Sam: Hi, I’m Sam Brownlee 
Luke: When I started my career in UK equities in 1990, pension funds and insurance companies owned half of all UK listed shares and that has meaningfully reduced, driven by legislation, regulation and accounting standards - now just 4% of UK listed shares are owned by pensions. (Source HSBC, ONS 30th April 2024)
Three decades of persistent selling should be coming to an end - Is that enough though to improve the outlook – where’s the marginal buyer coming from?
Companies are buying themselves – share buy-backs are shrinking the market every year - and the UK offers a relatively high dividend yield. (Source HSBC, ONS 30th April 2024)
And companies are buying other companies – M & A has been seen across many market sectors – Banks, Mining, Housebuilders, Insurance, Technology - and, whilst some deals haven’t reached fruition, they have highlighted the attractive valuations in the UK market
We don’t expect accounting standards to change, insurance regulation to be undone, or the Pensions Act to be overturned, but we have seen greater political scrutiny of the allocation by public pension schemes to UK equities. (Source: Morningstar, Budget Pensions news article, 6 March 2024)
And we should see buyers from overseas, attracted by the valuation discount at which many UK shares trade relative to their global equivalents; but lowly valuations haven’t been enough to attract buyers in recent years, so what’s different now?

Sam: Brexit has created headwinds for companies – regardless of the view of the outcome or the economic impact, this has increased (the perception of) sterling volatility and hence the cost of equity – and that might change for the better with a period of political stability
This matters more for some businesses than others – it shouldn’t impact a high quality analytics company or large pharmaceutical business at all whereas it’s clearly more important for a domestic bank
And there are some better signs for the UK: economic surprises are positive, household incomes in aggregate continue to grow in real terms with consumer confidence making new highs; and investment has been boosted by fiscal incentives
We now feel more than ever that the UK market is ripe for stock picking
The UK market is concentrated both at the stock and sector level
Our preference is to focus on long term growth compounders – quality businesses that thrive in all environments.

Risk Warnings

Investors should refer to the prospectus or offering documentation for the (fund’s/funds’) full list of risks.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.

Important Information

This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.

This is marketing material.

In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. 

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. 

© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are trademarks of BlackRock, Inc. or its affiliates All other trademarks are those of their respective owners.

MKTGH0624E/S-3661657
MKTGM0924E/S-3887474

Our case for UK Equities

Hear from Luke Chappell and Samantha Brownlee, Co-Portfolio Managers on BlackRock’s UK Fundamental Equities platform.

Why BlackRock

Our investment philosophy is based on the belief that equity markets are inefficient and through the scale and breadth of our rigorous, disciplined fundamental research combined with our sophisticated risk management tools it is possible to generate long-term alpha.

Risk: While the investment approach described herein seeks to control risk, risk cannot be eliminated.

As a team:

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We believe in the power of fundamental, bottom-up stock analysis and focus on assessing long-term prospects.
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Our investment approach is flexible, which allows us to aim to excel in various market conditions.
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We feel the management of a company is critical and our access to corporate leaders enables us to conduct around 1,000 company meetings each year.
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We rely on our extensive, disciplined research, risk management tools, and a large platform of experienced investment professionals.

BlackRock 31 May 2024

For professional clients only.

Our approach to Fundamental investing in the UK Market

Samantha Brownlee: When it comes to finding opportunities in the UK market, we believe in the power of fundamental, bottom up stock analysis.

We recognize that while the market may be quite good at valuing a business for the short term, it's not as effective at assessing long-term prospects.

We rely on our extensive, disciplined research, advanced risk management tools, and a large platform of experienced investment professionals. This combination lays the groundwork for us to hunt for long-term alpha in the UK market.

In our UK +2% and Focus Strategies, we focus on two types of companies:

Those with a lasting competitive edge, which means they have a strong or unique business position;
An example would be a data and analytics business that offers an unmatched proprietary and incredibly robust databases of case studies to the law industry
and/ or

Those experiencing significant changes, either structurally or cyclically, indicating a potential shift in their long-term performance.
An example of this would be a retailer that has transitioned its focus to investing in its online presence rather than its brick and mortar presence given changes in consumer behaviour trends

In addition, we want to see strong fundamental dynamics like growth that translates to free cash flow which may be reinvested at strong returns to strengthen and lengthen the company's potential sustainable competitive advantage.

We feel the management of a company is critical; we engage directly with company management and boards to deepen our investment analysis. Our access to corporate leaders enables us to conduct around 1,000 company meetings each year. (Source, BlackRock 31 May 2024)

Our investment approach is flexible, not confined to any particular style or market trend, which allows us to aim to excel in various market conditions.

We critically evaluate what the current share price of a company reflects about market expectations and how our understanding of the company might offer a unique perspective.

Members of our team, averaging 18 years of investment experience (Source, BlackRock 31 May 2024), have a dual role as both portfolio managers and analysts. We rigorously debate and stress test our investment ideas. The output is deliberate, diversified and scaled portfolios focused on high conviction stocks.

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase.

Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.

Important Information

This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.

This document is marketing material.

In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are trademarks of BlackRock, Inc. or its affiliates All other trademarks are those of their respective owners.

MKTGH0724E/S-3694760
MKTGM0924E/S-3887488

Our approach to Fundamental investing in the UK Market

Hear from Samantha Brownlee, Co-Portfolio Manager of BlackRock’s UK Fundamental Equities range as she highlights the team’s approach to long-only investing.

For professional clients only. 

UK Income; Potential Merits

Firstly, we believe the UK market presents a highly attractive investment opportunity, characterized by its remarkable affordability; It stands out in valuation terms with substantial double-digit discounts compared to other developed nations (Source: Barclays, 31 May 2024)
In addition to its cost-effectiveness, the UK offers a combined 6% yield from buybacks and dividends, the highest distribution yield in developed markets and foundation for investors seeking good total returns as well as income generating assets. (Source HSBC, ONS 30th April 2024).
Plus, many the dividends on offer from UK companies have been re-based during the pandemic era and we believe that some companies that may have been over-distributing now offer sustainable dividends.
Banner: What does this mean for investors & can they access these ideas?
Put simply, possible access to robust dividends with the potential for growth. 
We believe the best way is through fundamental, bottom-up stock specific research. 
We spend all day turning over stones to find the potential diamonds in the UK market that will offer clients capital and dividend growth. 
Our investment philosophy in our UK Income strategy is based on durable free cash flow, defined as all cash that is left over after a company meets all liabilities. We feel free cash flow allows companies flexibility and resilience in difficult times. It then also matters what companies do with the free cash flow. Thats why a significant portion of our time is spent engaging with management teams to understand their strategies and what they intend to do with their free cash flow, these capital allocation policies form an important consideration for our investment theses
We construct portfolio where cashflow is used in 3 different ways about 70% will be made up of Income Generators, this is the core of the portfolio and consists of companies generating sustainable free cash flow which is then allocated in a balanced way between shareholder distributions and investing to further accelerate growth. 

About 20% of the portfolio is invested in growth companies. These are advantaged growth franchises where either consistent investment, IP, technology have created high barriers to entry which result strong revenue growth. Here we expect the balance between shareholder returns and investing for growth to be skewed towards growth as cashflow can be invested to secure and compound these advantages over time resulting in high capital growth.

No more than 10% is invested in turnarounds. These are equities that have fallen out of favour, for whatever reason, but we believe the stock market has over-reacted and there is a credible plan to restore value. Here we are taking care to distinguish between structural and cyclical dislocations. We are looking for companies who may have temporarily lost their way or have been impacted by issues that we believe are solvable. 

Banner: Now let's talk about the UK backdrop
The UK's business environment remains robust, with its strategic geographic location, adherence to the rule of law, and an open economy free from protectionist measures or poison pills. This creates a conducive atmosphere for business operations and investments.
We believe that with the anticipation of political stability, the UK is poised to potentially enter a positive business cycle and if interest rates fall, as expected, this my further enhance the appeal of the UK market as an investment destination.
The UK property sector, particularly in house building and construction, along with select financial segments, is especially interesting to us at the moment. We are interested in property companies that have exclusive access to luxury areas, which we believe offer a distinct advantage over regions saturated with unused office buildings. We feel this type of distinction is significant.
Risk Warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances. 
Important Information
This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.
This document is marketing material.
In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. 
© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are trademarks of BlackRock, Inc. or its affiliates All other trademarks are those of their respective owners.

MKTGH0724E/S-3693321
MKTGM0924E/S-3887461

For professional clients only. 

UK Income; Potential Merits

Firstly, we believe the UK market presents a highly attractive investment opportunity, characterized by its remarkable affordability; It stands out in valuation terms with substantial double-digit discounts compared to other developed nations (Source: Barclays, 31 May 2024)
In addition to its cost-effectiveness, the UK offers a combined 6% yield from buybacks and dividends, the highest distribution yield in developed markets and foundation for investors seeking good total returns as well as income generating assets. (Source HSBC, ONS 30th April 2024).
Plus, many the dividends on offer from UK companies have been re-based during the pandemic era and we believe that some companies that may have been over-distributing now offer sustainable dividends.
Banner: What does this mean for investors & can they access these ideas?
Put simply, possible access to robust dividends with the potential for growth. 
We believe the best way is through fundamental, bottom-up stock specific research. 
We spend all day turning over stones to find the potential diamonds in the UK market that will offer clients capital and dividend growth. 
Our investment philosophy in our UK Income strategy is based on durable free cash flow, defined as all cash that is left over after a company meets all liabilities. We feel free cash flow allows companies flexibility and resilience in difficult times. It then also matters what companies do with the free cash flow. Thats why a significant portion of our time is spent engaging with management teams to understand their strategies and what they intend to do with their free cash flow, these capital allocation policies form an important consideration for our investment theses
We construct portfolio where cashflow is used in 3 different ways about 70% will be made up of Income Generators, this is the core of the portfolio and consists of companies generating sustainable free cash flow which is then allocated in a balanced way between shareholder distributions and investing to further accelerate growth. 

About 20% of the portfolio is invested in growth companies. These are advantaged growth franchises where either consistent investment, IP, technology have created high barriers to entry which result strong revenue growth. Here we expect the balance between shareholder returns and investing for growth to be skewed towards growth as cashflow can be invested to secure and compound these advantages over time resulting in high capital growth.

No more than 10% is invested in turnarounds. These are equities that have fallen out of favour, for whatever reason, but we believe the stock market has over-reacted and there is a credible plan to restore value. Here we are taking care to distinguish between structural and cyclical dislocations. We are looking for companies who may have temporarily lost their way or have been impacted by issues that we believe are solvable. 

Banner: Now let's talk about the UK backdrop
The UK's business environment remains robust, with its strategic geographic location, adherence to the rule of law, and an open economy free from protectionist measures or poison pills. This creates a conducive atmosphere for business operations and investments.
We believe that with the anticipation of political stability, the UK is poised to potentially enter a positive business cycle and if interest rates fall, as expected, this my further enhance the appeal of the UK market as an investment destination.
The UK property sector, particularly in house building and construction, along with select financial segments, is especially interesting to us at the moment. We are interested in property companies that have exclusive access to luxury areas, which we believe offer a distinct advantage over regions saturated with unused office buildings. We feel this type of distinction is significant.
Risk Warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances. 
Important Information
This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.
This document is marketing material.
In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. 
© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are trademarks of BlackRock, Inc. or its affiliates All other trademarks are those of their respective owners.

MKTGH0724E/S-3693321
MKTGM0924E/S-3887461

Explore our UK Equity fund range

Risk: The value of equities and equity-related securities can be affected by daily stock market movements. Other influential factors include political, economic news, company earnings and significant corporate events.

BlackRock’s UK Equity platform offers a broad range of strategies designed to cater for various client needs whilst seeking to exploit the exciting investment opportunities within the UK equity market.

Click on the below link to discover our range of UK Equity funds across BlackRock and iShares.

View our UK Equity fund range

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