Investment strategy
August 18, 2021
2 mins

UK: Rising buybacks, dividend payouts and M&A activity

August 18, 2021
2 mins
Jeffrey Sacks
Head of EMEA Investment Strategy
SUMMARY

UK equities offer cheap exposure to cyclicals, value and dividends. Given that it is also under-owned by global investors, we advise continuing to buy the market.


We went overweight UK equities in November 2020 and added to our overweight in February. The UK market has risen 11.2% so far this year, and 17.2% over the past 12 months. However, it is still 7% below the pre-COVID high and 10% below the all-time high. In addition to a very sharp recovery in average EPS growth of over 60% this year, a key reason for our overweight position is the cheap market valuation of 13X.

There are now clear catalysts for some of the value to be unlocked, with the sharp rise in share buyback activity, companies resuming dividend payments and many raising their dividend payouts. Firms that are not cost-cutting and streamlining their business models to drive the necessary cashflow, are increasingly facing the threat of takeover. Many of these takeovers are from foreign companies, which are encouraged that the Brexit fallout is less than feared and the COVID vaccine progress has been rapid.

With companies either being more proactive in using their cash-piles or risking facing predators, there is very likely to be rising institutional interest in the market. Underpinning this growing institutional interest is low ownership in a cheap market with great cyclical exposure, value, and dividend attractions. Our advice is keep buying the broader market as the individual catalysts help to drive overall price levels higher.

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