The UK equities market offers opportunities to investors, but the exiting of companies from the UK market continues to be a challenge, Sue Noffke, head of UK equities at Schroders, has said.
Speaking to David Thorpe, investment editor at FTAdviser, Noffke discussed what the UK market offers investors that they cannot get elsewhere, the trend of high-profile companies exiting the UK market and the relative merits of buybacks and dividends for a UK equity income investor
When constructing portfolios, Noffke explained she adopted a “barbell approach”.
She said: “I have some large cap, higher yield, sustainable high-yield because we've done the homework on whether they can afford to continue to pay those dividends into the future, together with some companies that might have a lower yield today but have the potential to grow their dividends at very attractive rates of growth, to give attractive returns for me as an investor in them.
“The de-rating that's happened over the past two years or so in interest rates and inflation has come to the fore. In that mid and small-cap area it has meant that the yields on those areas of the market are very much more attractive relative to large-cap yields than they have been historically.
“I talked about the yield on the UK equity market [at] about 4.3 – mid caps are about 3.4, so you are getting less of a yield, but not that much less.
“And particularly when you think about that, that ability to grow faster, from that area, I think there are many attractive opportunities today compared to in the past, and it wouldn't surprise you that the portfolio is positioned to take advantage of that.”
Among of the challenges facing the UK equity market are the dearth of IPOs and the delisting of companies from the UK.
With few new companies listing in the UK, Noffke said this was causing “angst and concern” among investors.
A report commissioned by the Capital Markets Industry Taskforce on how to rejuvenate the UK capital market is due to be published this autumn.
The work is being carried out by a group led by Nigel Wilson, former group chief executive of Legal and General.
This video and article are worth 30 minutes of CPD.
Words by Ima Jackson-Obot
Video by David Thorpe
