Insights


Time to Get Back into UK Equities

11 November 2019

UK equities have been largely unloved in this year’s global equity bull rally, with the FTSE 100 up just over 12%. Global equities, meanwhile, have recorded a staggering rally, climbing more than 20% year to date.

However, as confidence has increased that we will avoid a no-deal Brexit, investors have started to re-examine UK equities. Indeed, in the last two months, UK equity ETFs have seen more than $4.2 billion of net inflows, across both large and mid-cap products.

Yield-hungry investors have also been tempted by a relatively attractive dividend yield of 4.66%, which stacks up favourably against just 2.51% for the MSCI World.

In addition to greater certainty on Brexit, a more dovish Bank of England (BoE) could also help to support UK equities. Although the BoE is officially on hold on further rate movements until after Brexit, on Thursday two Governors unexpectedly voted for a cut at the Monetary Policy Committee, suggesting the current path may not be set in stone.

Selecting your UK Equity Index — the FTSE All-Share

Although the FTSE 100 is widely recognised as the bellwether for UK Equities, it is important to remember that it is purely a large-cap index.The FTSE All-Share Index, on the other hand, seeks to cover 98-99% of the market cap of UK equities, with roughly 80% of the index in FTSE 100 companies, 16.5% in FTSE 250 mid caps and 3.5% in FTSE small caps.
This greater diversification across a larger size segment has led to better risk-adjusted returns over all trailing time periods versus the FTSE 100. The higher weight to smaller companies also gives the index a greater tilt to domestically focused companies, providing a buffer to trade tensions and rhetoric.


Be More Defensive with a Quality Income Tilt

Investors looking for a more defensive approach to UK Equities could consider the S&P UK High Yield Dividend Aristocrats Index. This index seeks to gain exposure to companies with a strong track record of sustained dividends.
Year to date, this index has relatively outperformed the broader UK market by more than 6%, which has largely been driven by


Figure 1: YTD Cumulative Returns of S&P UK High Yield Dividend Aristocrats vs. S&P UK BMI

Source: Morningstar Direct, as of 31 October 2019. Index performance is based on net total return in base currency. Past performance is no guarantee of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses associated with the fund or brokerage commissions associated with buying and selling a fund. Index performance is not meant to represent that of any particular fund.


Flows


European-Domiciled ETP Segment Flows (Top/Bottom 5, $mn)

European-Domiciled ETP Asset Category Flows ($mn)

Sources: Bloomberg Finance L.P., for the period 31 October–7 November 2019. This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future.


Fund Details


Source: State Street Global Advisors, Bloomberg Finance L.P., as of 31 October 2019.


Annualised Performance


Source: State Street Global Advisors, as at 31 October 2019. Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. All results are historical and assume the reinvestment of dividends and capital gains. Visit spdrs.com for most recent month-end performance. The calculation method for value added returns may show rounding differences. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Some of the products are not available to investors in certain jurisdictions. Please contact your relationship manager in regards to availability.


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