Lowes Magazine Issue 125

INVESTMENT

Is now a good time to be investing in the UK?

The UK market also suffered towards the end of 2022, which has been attributed to a number of factors including the pandemic, Brexit and the war in Ukraine. Companies’ share prices and value, measured by their price/earnings ratio, dropped. Yet, conversely, this could make the UK market a good place to buy, if you have a long term investment horizon, as valuations are comparatively cheap. A recent poll among investment managers put the UK as the most attractive region in 2023 and over the next five years. What makes the UK market attractive? First is that many companies listed in the UK derive their earnings internationally, rather than primarily from the domestic market. According to FTSE Russell, over 80% of FTSE 100 earnings are sourced outside the UK. Secondly, at time of writing, the average price/earnings ratio for a company – which measures how much investors are willing to pay for a company relative to its current earnings, which reflects investors’ expectations of future earnings growth – is several times higher for the S&P 500 than for the FTSE All Share or the FTSE 100, illustrating the value to be had in the UK market. And, as well as sourcing their earnings from around the world, the UK market is renowned for the high number of companies paying dividends, which can deliver useful returns when growth markets are suffering. As investors, we can often feel more comfortable investing in our domestic market. With Independent Financial Advice to help in careful selection. Now could be a good time to follow that instinct.

A KEY PRINCIPLE OF SUCCESSFUL INVESTMENT IS holding a diversified portfolio. It is primary to the strategy which we at Lowes use for our client portfolios. The reason for this is to increase the ability of the portfolio to ride the markets up when they are rising and help to protect wealth when markets fall, as they invariably do from time to time, by spreading the risk by investing across a range of assets and investment types. Then if one investment is being negatively affected by market forces, this should be at least in part offset by different assets which may be benefitting from those market forces. So for example, if stocks and shares (equities) are under performing at a certain time, fixed income investments held in a portfolio will usually (but not always) offset this to some extent. The trade-off here is that equities tend to outperform fixed income in rising markets. But holding the two can provide for a more stable portfolio over the long term. Adjusting the level invested in each asset within a portfolio – a process termed asset allocation – is how the investment team at Lowes looks to ensure Lowes portfolios deliver on the upside as much as possible and help protect on the downside. We do this by investing in a range of professionally managed funds which offer the level of diversification needed. This is not a strategy always adopted by market participants. Over the past couple of years we have seen investors in general plough into the US, as it was seen as one of the best performing markets, in part due to the proportion of technology stocks in the market, which drove up growth. However, in 2022, technology stocks fell from their highs, taking the S&P 500 lower with them. Client Competition 2023 THE RESIDENTIAL PROPERTY MARKET HAS COME under scrutiny recently as pressure from the Bank of England interest rate rises and the prospect of a long recession have served to dampen the market. As a nation of home owners, our properties are one of, if not the largest of our financial assets. Alongside money we often have much emotional capital expended in them. Over the years the residential property market has tended to withstand the vagaries of the economy. But with the Bank of England predicting a potential two year recession, and loose monetary policy coming to an end, can it continue to do so in the way it has in the past? This year’s Client Competition is to predict the annual percentage change (rise or fall - all property types) to two decimal places, as recorded by the Land Registry for November 2023, (data is due to be published in January 2024). The change recorded to November 2022 was 10.3% – please see the right hand column of the table for the annual percentage change in other months in 2021/22.

Average property price (all types)

Annual % change

Month

Nov 2021 Dec 2021 Jan 2022 Feb 2022 Mar 2022 April 2022 May 2022 June 2022 July 2022 Aug 2022 Sept 2022 Oct 2022 Nov 2022

267,370 268,250 273,368 273,389 275,175 278,420 281,599 284,415 289,761 293,250 295,258 295,864 294,910

8.66 8.17 9.48 9.54 8.55

11.27 12.06 7.05 14.55 12.60 9.76 12.35 10.30

Source: Land Registry

To enter, please visit www.lowes.co.uk/client-comp or use the tear-out card included with this magazine and send it to: FREEPOST LOWES FINANCIAL MANAGEMENT . No further address is required. The winner will be the person who most closely predicts the percentage change. The prize is £500 of Amazon vouchers. In the event of a tie, the prize fund will be split.

11 Lowes.co.uk