• Is now the time to rebalance portfolios towards the highest quality company names that have been left behind by the rally? Read here.

UK stocks are a bargain

28012020_UK Stocks

UK stocks are a bargain

In recent months we have meaningfully increased the Montaka and Montgomery Global funds’ exposures to UK equities. After years of underperformance during uncertainty created by a prolonged Brexit, the stage is now set for UK stocks to rise.

Since the Brexit referendum in June 2016 the UK stock market has chronically underperformed its cousin across the Atlantic. In this period US stocks, measured by the S&P 500 Index, have gained 57 per cent. However, UK shares, measured by the FTSE 100 Index, have risen just 18 per cent. At the same time the Pound Sterling is still down 12 per cent compared to the US dollar, so in US dollar terms the UK share market has struggled to deliver any return at all. Gloomy.

Performance of US and UK equity indexes since 23 June 2016

Screen Shot 2020-01-24 at 2.42.59 pm

Source: Bloomberg

Yet global equity investors should be smiling when they look at the UK today. The clouds that have surrounded the UK political environment are now passing, making way for sunny prospects. In December last year Boris Johnson won the UK general election in a landslide. Not only does this give the Government a mandate to push Brexit through (this week), but also a license to accelerate fiscal stimulus. At the same time monetary conditions remain favourable with the 10-year UK Government Bond yield near a record low of just 0.6 per cent per annum.

10-year UK Government bond yield over the last 10 years

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Source: Bloomberg

We think cheap equity prices, political certainty, potential fiscal stimulus and low interest rates are a recipe for a rebound in UK equities. Especially the high quality, growing UK companies that we own for our clients across the funds.


Christopher is a Portfolio Manager for the Montaka funds and the Montgomery Global funds. He joined MGIM at establishment in 2015.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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