The UK stock market has been out of favour. But a good reason to question that view is the $1.3 trillion pile of cash that is waiting to be spent.
This is the money that Blackstone, KKR and other American private equity giants are keen to splash out in Britain, having already, this year, struck more than 360 deals on these shores.
Alarm is mounting over this bargain-hunting spree which is a pressing political issue, thanks to this newspaper’s campaign.
UK shares have massively underperformed since the Brexit vote, and seem set for a big bounce back
But these pandemic predators are not the only ones buying British. Bank of America’s latest fund managers’ survey indicates the highest level of interest in our markets since March 2014 and Canada’s government pension schemes are in an acquisitive mood.
The tussle for control of Morrisons is the most public evidence of this enthusiasm, which is being fuelled by economic recovery and by the overdue realisation that UK shares have massively underperformed since the Brexit vote, and seem set for a big bounce back.
Perhaps there is an analogy with the England football team, whose potential was underestimated and is now being reassessed.
Over the past five years, the key US index – the S&P 500 – has surged by 102 per cent, spurred on by Amazon and its other tech stock constituents.
The FTSE 100 – which lacks tech names – has risen by just 7 per cent, largely as a result of an aversion to UK shares created by the Brexit vote in 2016.
Matthew Beesley, chief investment officer at Artemis, says: ‘UK shares have been shunned by overseas and domestic investors, first due to Brexit and then to Covid.
‘The UK market is growing faster than those elsewhere. But, for the moment, it is cheaper relative to its peers which is a very interesting cocktail.’
David Coombs, head of asset allocation at Rathbone, the wealth manager, has been snapping up UK shares like Halma, Legal & General and Rentokil for a while.
He says: ‘I think there is room for Britain to do well post-Brexit. Things aren’t going to be as bad as people feared.’
Based on this optimism, Coombs is backing Barclays. He explains: ‘It’s not the first bank in the world that you’d buy, but it’s a good proxy for a more positive view on the UK.’
Anyone who is heartened by this sunnier stance may already have a portfolio brimming with British shares, fund and trusts. Yet it is still worth casting a critical eye on these holdings, and perhaps making some additions.
For a few, backing Britain will be mostly about FOMO (fear of missing out). But for others, there will be another motive.
Could pandemic private equity predators slink away if, thanks to demand, shares in UK companies are no longer viewed as a discount buy, leaving these companies to flourish and provide fruitful long-term returns for shareholders rather than private equity executives? Perhaps.
Companies that have faced challenges causing their profits to be depressed are among those that could soon be seen in a more favourable light.
Beesley cites Kingfisher – which now relies on the continuation of the lockdown zeal for DIY – and Marks & Spencer, whose price has improved in response to the tussle for Morrisons, but whose clothing issues continue.
But other beneficiaries could be businesses perceived as success stories. Next, for example, is considered to be a high street survivor and a leading innovator.
Its new Top Platform venture – which will provide logistics and fulfilment services to other brands – turns the company into a British rival to the Canadian Shopify, supplier of shop fronts to thousands of stores.
Next has a price-to-earnings (PE) ratio of 35. This is a measure of how cheap or expensive a stock is relative to its profits. Shopify’s PE is 252.
Burberry, the brand that exemplifies quirky Britishness, may have just lost its chief executive to Salvatore Ferragamo.
But its PE ratio is 22, against 70 for LVMH, owner of Tiffany, which is a little bewildering since Burberry could be a bid target.
Over the next few weeks and months, almost every UK business that is ‘asset-heavy’ could be tipped as a private equity object of desire. Investing on the basis of such talk is not a guaranteed way to gains, however, as private equity bosses are not possessed of unerring judgement.
They may pursue a company that is fundamentally mediocre and then retreat leaving you with a parcel of shares unlikely ever to appreciate.
The simplest way to back a long-term UK recovery is a tracker fund. Coombs has opted for the iShares Core FTSE 100.
If you have an assortment of funds and trusts, check whether these are among those recommended by Interactive Investor and other platforms.
The most popular picks include City of London, Ninety One UK Alpha, Fidelity Special Situations and Liontrust Special Situation. I am a holder of the last two and hoping, like other investors, for things to get considerably better.
Share of the week: Barratt Developments
Housebuilders were hit by huge disruption in the early days of the pandemic, paralysing construction sites.
But since then a market boom has buoyed developer sales and profit margins, which have been rosy enough to cushion other factors such as rising costs.
Against this backdrop, FTSE 100 builder Barratt Developments is due to provide a trading update on Wednesday and investors will be keen to find out how it is managing.
In particular, they will be looking for guidance on how the company thinks the end of the Government’s stamp duty holiday could impact sales.
Rival Vistry said this week that the market remained ‘strong’ regardless of the tax break’s end. However, recent data from Nationwide suggests the surge in prices is ‘starting to lose steam’.
Barratt completed the sales of 9,077 homes in the six months to December 31. For the full financial year to June 31, it is aiming to have completed as many as 16,250.
At the same time, its average selling price was last said to be £283,500 per home.
Laura Hoy, an equity analyst at Hargreaves Lansdown, said a key factor to watch is whether Barratt is still on course to hit its forecasts for home sales.
Even if it does succeed, completions will still be 9pc below pre-pandemic levels, ‘so a miss would be a disappointment’, she said.
Another warning sign would be if net private reservations per week – 264 in the first half – do not rise.
Barratt’s shares rose 2.5 per cent, or 17p, to 705.8p yesterday.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.