UK shares look cheap, but fund investors remain wary of piling into their home market amid Brexit uncertainty.
From both a growth and an income perspective, the UK stockmarket is as cheap as chips, but retail investors continue to shy away, data from our parent company interactive investor shows.
On the price to earnings valuation metric, the FTSE 100 is in the cheapest 10% of readings since 1996. In addition, the average dividend yield for shares in both the FTSE 100 index and FTSE All-Share index is historically high, at nearly 5%.
But, although valuations are low, investors are not attempting to buy the dip. Just one UK fund has a place in our top 10 most popular fund league table – Lindsell Train UK Equity – with CFP SDL UK Buffettology losing its place.
In May 2016, the month before the Brexit vote, UK funds were well represented in the top 10, with four funds featuring: CF Woodford Equity Income, HSBC FTSE 250 Index, HSBC FTSE All-Share Index and Marlborough UK Micro Cap Growth.
The cheap valuations for UK equities now reflect uncertainty over what form Brexit will take, which has unnerved investors. Figures from the Investment Association show over £10 billion of domestic retail investors’ money has exited from UK equity funds since June 2016, with a large chunk having been redeployed into overseas businesses, global equity funds being the main beneficiaries.
This pattern is echoed in our table of most popular funds with the customers of our parent company, interactive investor. Four of the top five funds adopt a global approach: Fundsmith Equity, Lindsell Train Global Equity, Vanguard LifeStrategy 80% Equity and Baillie Gifford Global Discovery.
Elsewhere, US equities remain in vogue, with investors taking advantage of the cheaper valuations that emerged following the uptick in volatility in the final quarter of 2018. Both Baillie Gifford American and Vanguard US Equity Index feature in the top 10.
Those who topped up exposure at the start of 2019 can pat themselves on the back, with the S&P 500 index and Dow Jones index posting their best January performances since 1987 and 1989, respectively.
|Rank||Fund||IA sector||Change since December||*1 year (%)||*3 years (%)|
|2||Lindsell Train Global Equity||Global||--||15.9||76.8|
|3||Vanguard LifeStrategy 80% Equity||Mixed Investment 40%-85% Shares||--||3.7||37|
|4||Lindsell Train UK Equity||UK all companies||---||8.9||39.7|
|5||Baillie Gifford Global Discovery||Global||New entry||20.5||97.2|
|6||Vanguard LifeStrategy 60% Equity||Mixed Investment 40%-85% Shares||-1||3.2||28.8|
|7||Axa Framlington Global Technology||Specialist||New entry||13.5||115.4|
|8||Baillie Gifford American||North America||2||20.1||116.6|
|9||Vanguard LifeStrategy 100% Equity||Flexible||-2||4||45.5|
|10||Vanguard US Equity Index||North America||-2||10.4||57.6|
Data up to 4 March 2019. Source: Morningstar.