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Four reasons to watch UK equities

Between Brexit trade tensions and COVID-19, UK equities have navigated a tough environment in recent years. Here are four reasons to watch the UK equity market now that a trade deal has been secured and pandemic restrictions have been lifted.

In brief

  • The UK equity market contains many leading multinational companies that generate a majority of their revenues from overseas markets1.
  • The UK initial public offering (IPO) market is ramping up, with issuance in the first half of 2021 exceeding the entirety of 20202.
  • UK companies have embraced the rising prevalence of environmental, social, and governance (ESG) criteria.
  • UK dividends have historically outperformed other developed markets3.

Sources: 1BlackRock, Jun 2021 2London Stock Exchange, Jun 2021 3Barclays Research, Refinitiv, Sept 2021. Based on a 10 year median as of Sept. 30, 2021.

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.

1. The UK market is not the UK economy

The UK market is not the UK economy

As of March 31, 2021
Source: BlackRock (June 2021)

The UK equity market is represented by many leading multinational companies from a variety of sectors.

It offers investors exposure to a range of global themes, where outcomes are not dictated by the UK economy.

2. Positive business outlook

Positive business outlook

Based on the results of 550 C-suite interviews.

Source: EY (June 2021)

A Brexit trade deal provides UK companies with clarity around the rules of engagement.

Combined with an effective vaccine roll-out, the UK is seen as the most attractive place in Europe for future investment.

A resurging initial public offering (IPO) market
Optimism has spread to the IPO market, where issuance in the first half of 2021 has exceeded the entirety of 2020.
A resurging initial public offering (IPO) market

*Includes IPOs from both Main Market and AIM exchanges.
 Source: London Stock Exchange (June 2021)

3. A focus on environmental, social and governance (ESG) factors

45% of FTSE 100 companies have integrated ESG metrics into their executive compensation plans. This puts the UK ahead of the U.S., where only 22% of companies have adopted the same practice.

Source: Pay Governance (March 2021), S&P Global (March 2021)

A focus on environmental, social and governance (ESG) factors

Source: PWC (March 2021). This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator.

Ahead of the curve on gender diversity
UK companies have consistently outperformed the global average on female representation. This leadership may bring further interest to the UK equity market.
Ahead of the curve on gender diversity

Source: MSCI (November 2020)

4. UK equities can be a compelling source of income

UK equities can be a compelling source of income

10-year median for the time period Sept 2011 to Sept 2021
Source: Barclays Research, Refinitiv (September 2021)

UK dividend rates have historically exceeded those of other developed markets.

After widespread cuts in 2020, the average UK dividend rate remains at 3.7%.

When zombie companies attack

While these four factors provide UK equities with an attractive backdrop, the presence of "zombie companies" has dragged down the overall performance of the UK market.

A zombie company
Is an underperforming business that is close to insolvency. It's profits are often lower than its debt interest payments.
A zombie company

Source: Onward (September 2020)

The UK market offers many differentiated businesses.

When backed by an actively managed approach, investors could gain exposure to the best the UK has to offer.