Brexit: UK equities “more attractive”, says NN Investment Partners

Big BenBrexit uncertainty has produced lower valuations of UK equities and transformed the market’s dividend landscape, creating a market rich with buying opportunities, NN Investment Partners (NNIP) said.

The balance sheet strength of many UK larger companies has improved, said Manu Vandenbulck, senior portfolio manager, equity value at NNIP.

Meanwhile, a recent Brexit conference hosted by Funds Europe heard that smaller UK stocks were more at risk from a UK departure from the EU due to higher exposure to EU revenues.

NNIP said UK stocks offer an average dividend yield of around 4.5%, well above the long-term average of 3.5%. On cyclically adjusted price earnings, the market is now around 1.5 times cheaper than its own long-term average.

Compared to the eurozone, the UK market is trading at attractive dividend spreads. This is attributable to the declining prevalence of commodity stocks in the FTSE; their index weight has halved since 2008. Exporters, which comprise 75% of the UK equity market, have also benefited from a weaker sterling, outperforming domestically orientated stocks.

Earnings momentum is also positive, with a net upgrade in the UK outlook for the first time in three years, whereas earnings momentum in the rest of Europe remains weak or stagnant, said NNIP.

“Although uncertainty will remain until the vote has passed, adding UK stocks to a European equity-dividend portfolio makes sense already today,” said Vandenbulck.

“Cautious investment spending has improved average balance sheet strength of many UK large caps.”

©2016 funds europe

Sponsored Profiles

SPONSORED FEATURE: Smarter than beta

Jun 14, 2017

‘Smart beta’ investing is rapidly becoming a popular alternative to both conventional passive management and traditional active management.

SPONSORED FEATURE: Smart beta: Unlocking key drivers of return

Jun 14, 2017

Manuela Sperandeo, iShares Head of Specialist Sales EMEA, tells Funds Europe how investors can leverage smart beta strategies to target numerous outcomes.

SPONSORED FEATURE: Minimum variance indices: Rewriting the rules

Jun 14, 2017

The FTSE Russell indices tracked by lyxor lead to fewer specific risks, fewer valuation and crowding issues and more consistent performance.

SPONSORED FEATURE: The reflationary environment

Jun 06, 2017

Funds Europe talks to Andreas Wosol about the implications of a return to reflation and why the value part of the European equity market could support investors in such an environment.

Executive Interviews

INTERVIEW: Finding managers that can (and do)

Apr 18, 2017

Fabrice Kremer, a fund selector at Banque de Luxembourg Investments, has berated fundamental managers for failing to beat indices, but he remains committed to active funds. He speaks to Nick...

JERSEY INTERVIEW: ‘A steady sort of place’

Mar 21, 2017

The chief executive of Jersey Finance is keen to portray the island as a stable, trustworthy jurisdiction. He talks to George Mitton.

Roundtables & Panels

TRENDING: Smart beta indices continue onward march

Jun 14, 2017

We asked five investment experts how smart beta indices have performed against cap-weighted indices over the past year and what the investment outlook suggests about the prospect for different investment factors.

SMART MONEY: Following the smart money

Jun 14, 2017

We asked six investment professionals about the emphasis they are placing on smart beta and active ETFs and how platforms are adopting these products.