Research among wealth managers, financial advisers and financial planners across the UK, commissioned by Rathbones Asset Management Ltd, the fund management arm of Rathbones Group Plc, reveals expectations of strong growth in UK equities over the next 12 months.
Eighty-one percent of these investors expected growth among large and mid-caps, although sentiment towards small caps was mixed.
In May this year, the FTSE 100 reached record highs, and the findings suggest respondents are anticipating further strong returns, with over half (56%) predicting an increase of between 5% – 10%, and a quarter of those surveyed pointing to gains of between 10% – 15% over the next 12 months. A further 16% expected an increase of below 5% while just 2% expected a fall.
In the FTSE 250 index, the numbers looked similar, with expectations of a 5% – 10% rise from 56% of those surveyed. A more bullish 22% expected a stronger rise of 10%-15%, while 18% anticipate an increase of 5% or below. Only 3% predicted a fall.
The picture is more mixed for the FTSE Small Cap index, however. While sentiment is still positive, with 74% of respondents expecting a rise, 17% think the index will fall and 9% expect little change.
A period of low UK equity valuations has also seen investor outflows from UK equities in recent years. However, 55% of those questioned believed that outflows will fall. And a further 25% believe flows will turn positive.
UK economy
A barometer of the UK economy, the Purchasing Managers’ Index (PMI), which is an index of the prevailing direction of economic trends in the manufacturing and services sectors and is often associated with the direction of midcaps, underlined positive sentiment towards the UK economy. Nearly all respondents (86%) expect to see the UK PMI Composite level rise over the next 12 months.
The prospects for the UK economy are also underpinned by the belief that UK consumer confidence is set to increase over the next 12 months, with 76% of respondents anticipating a rise in confidence and 19% believing it will remain the same. Just 5% see a fall in UK consumer confidence.
And while the US has been the main driver of growth over recent years, the findings indicate that 70% of those surveyed believe UK equity valuations are set to rise versus US equity valuations.
Alexandra Jackson, fund manager, Rathbone UK Opportunities Fund said: “It’s no surprise that investors are warming up to UK equities again. Low starting valuations and limited ownership are colliding with an improving economy and rapidly falling inflation. A noteworthy contrast to the US, where valuations are significantly higher, certain stocks are very crowded, lead indicators are slowing, and inflation looks stickier. The political and economic arguments for avoiding the UK are draining away – by mid-summer we could have a new government and a rate cut – a supportive environment particularly for UK mid-caps.”
