For information purposes only. The views and opinions expressed here are those of the authors at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
Article snapshot
- A recession is indeed a quite plausible scenario for the UK given current pressures. The key question for investors is what this would mean for equity markets?
- After a decade of ‘ultra-low’ monetary policy following the global financial crisis, it will take time for markets, companies and consumers to adjust to higher levels of interest rates.
- The current macroeconomic environment both in the UK and elsewhere suggest a cautious approach should be adopted, with the risk/reward in broad indices being unfavourable in the short-term.
UK equities – Value focused: Matthew Tillett
Premier Miton UK Value Opportunities Fund
“Ever since the EU referendum vote in June 2016 there have been repeated predictions of imminent disaster for the UK economy. Considering all the problems created by the exit from the EU, as well as the pandemic, an energy and a cost-of-living crisis, it could be argued that the UK economy has been remarkably resilient. There has yet to be a recession whilst unemployment has remained low.
Paradoxically, the current crisis narrative, which revolves around the impact of higher interest rates on the consumer and the wider economy, stems from the UK economy performing better than expected. At the end of 2022, the near universal view was that the economy was heading for a deep and protracted recession. This has not happened. Instead, the economy is grappling with a tight labour market and stickier than expected core inflation, leading to fears that a recession is once again inevitable as interest rates have to move higher and higher.
As ever, in the short-term the markets will continue to be unpredictable and volatile, especially so in the current uncertain environment. But the opportunity in UK equities for long-term oriented patient investors is an excellent one. Rarely has it been possible to own such a wide range of high quality companies across multiple sectors at such low valuations. Timing is, of course, impossible. Indeed, conditions may well get worse before they get better. But eventually the tide will turn and a new cycle will begin. And if history is any guide, the cheapest and most undervalued stocks will have recovered well before this actually happens.”
UK equities – Income focused: Emma Mogford
Premier Miton Monthly Income Fund
“We continue to view the outlook cautiously. After a decade of ‘ultra-low’ monetary policy following the global financial crisis it will take time for markets, companies and consumers to adjust to higher levels of interest rates. In our opinion, the next decade includes interest rates and inflation closer to what we saw in the decades prior to 2008.
This adjustment will prove difficult for some companies to navigate, especially those with high levels of debt. We feel particularly confident in our approach to focus on quality companies against this backdrop. Markets are also likely to be volatile and offer lower returns going forward in our view, meaning dividends are becoming an increasingly important source of total shareholder return.
Now is a fantastic time to be looking at UK equities in our view. Based on a price to earnings multiple, the UK is still trading well below the valuation of the US market. The UK contains a wealth of good quality, cash generative companies with attractive starting valuations and we expect, in time, more investors will return to the market.”
UK equities – Growth focused: Benji Dawes
Premier Miton UK Growth Fund
“We are cautious on the current macroeconomic environment both in the UK and elsewhere and generally don’t see the risk/reward in broad indices as favourable in the short-term. The Fund is exposed to more esoteric companies that we believe can perform in tough markets through taking share, for example, Games Workshop, Alpha Group, Jet2, Indivior, Cranswick, Bytes as well as companies that should benefit in a tougher macroeconomic environment, for instance volatility beneficiaries IG Group and TP ICAP, discount retailers Primark and B&M, household savings firms Moneysupermarket and Telecom Plus and insolvency practitioner FRP.
We continue to follow a disciplined process to maintain a balanced approach in selecting quality growth companies at the right valuation. Allocations to the UK remain markedly lower and the low valuation in comparison to other markets mean fundamental as well as technical factors continue to support further strong performance.”
