There are three reasons why the UK is currently the most attractive major equity market, according to JP Morgan Asset Management (JPMAM) portfolio manager James Illsley.
In the latest Portfolio Adviser video, Illsley, who manages the JP Morgan UK Equity Core and JP Morgan UK Equity Plus funds, says the UK market has attractive valuations, strong economic performance and the right sector mix on its side.
The latest Bank of America Merrill Lynch fund manager survey revealed respondents have moved overweight UK equities for the first time since July 2012. The allocation to UK equities increased 4 percentage points to 2% overweight, its highest since March 2014.
JPMAM’s own latest long-term capital markets assumptions rated UK equities as offering the highest prospective return among major asset classes in sterling terms.
“It’s the first time I can remember the UK has been at the top of the pops since I joined at the firm – and that was in 1999,” he says.
Illsley also points to the Bank of England upgrading its forecast for UK GDP growth expectations to 7.25% which, if correct, would make the UK the fastest-growing major economy this year.
In addition, he notes of all the major equity markets the UK has more exposure to recovering cyclical stocks in sectors such as financials, commodities, energy and consumer discretionary.
Illsley says the team seeks combination of valuation, quality and improving performance when picking stocks to play the back to work, reopening theme.
But he also warns it pays to be selective because a lot of companies have taken on high levels of debt to survive the pandemic.
“While optically market caps and share prices might look attractive, if you look at the complete size of that company including its debt, those companies look less attractive and in many cases may have to raise equity to rebuild their balance sheets.”
Watch the vide above for more.
