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Why British stocks are cheap and why you should snap them up today: World-class firms look good value and profits are soaring
British companies have been among the least popular with investors ever since we voted to leave the European Union.
Since then, savers have pulled more than £6.6billion from funds investing in British firms and instead put it in places perceived as safer havens.
And over the past two years, funds investing in UK companies have been among the worst sellers almost every month, according to data from trade body the Investment Association.
Picking up: British companies have been among the least popular with investors ever since we voted to leave the European Union
That has left the UK with a stock market filled with world-class companies that are looking pretty cheap by international standards.
On top of that, profits are soaring. So far this year British companies have reported record profitability, according to research by online dealing service The Share Centre.
This has started to pique interest among investors.
While the FTSE 100 may be lower than it was at the start of the year, it was one of the world’s fastest-growing indices in April.
Two of Britain’s best-known fund managers – Neil Woodford and Richard Buxton – have long fought Britain’s corner.
At a private dinner last month, Buxton told journalists that he was using the UK’s unpopularity to snap up good investments cheaply.
And experts say investors should be doing the same.
Ben Yearsley, of adviser Shore Financial Planning, said: ‘The UK’s economy is not as bad as some make out but because people are weary, it means a lot of UK stocks are looking quite cheap, particularly solid, sensible domestic businesses.
The UK had a good month in April and I think it is looking like a reasonably attractive place to invest.’
For investors wanting to invest once more in the UK, Yearsley tips JO Hambro UK Dynamic, which has turned £10,000 into £16,696 in five years.
Oil companies BP and Royal Dutch Shell are its top two holdings, but it also has big stakes in Lloyds Bank, supermarket Morrisons and insurer Aviva.
Adrian Lowcock, of investment firm Architas, likes Buxton’s fund Old Mutual UK Alpha, which made £14,890 from £10,000 since 2013.
Buxton tends to be what experts call a ‘contrarian’ investor – he buys unloved companies and waits for the market to change its opinion about them.
Among its biggest picks is software firm Sage and commodities giant Glencore.
A similar fund is M&G Recovery, where at least £8 in every £10 is invested in companies that are considered to be out of favour with the stock market.
Manager Tom Dobell counts Tullow Oil, Peppa Pig producer Entertainment One and HSBC among its top picks. His fund has returned £12,740 from £10,000 in five years.
T HE fastest-growing UK funds have been those that have invested in smaller companies, returning more than 500 per cent over the past 20 years.
Last month, the average UK smaller companies fund returned 4.84 per cent – a decent return when you compare that to the 4.24 per cent produced by the average North American fund.
However, investing in smaller companies tends to be riskier than putting money in larger, more established firms. But for those willing to take the risk, the rewards can be huge.
Lowcock likes Franklin UK Smaller Companies, which has turned £10,000 into £21,340 in five years and has money in firms such as brick maker Ibstock and pensions firm Xafinity.
Lowcock said ‘If you’re invested in the UK, I don’t think now is the time to be selling up.’