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Manager in focus: Artemis – Outlook for the UK market

With the announcement of a Brexit deal at the end of 2020, at least some uncertainty for UK markets was removed. Artemis manage a UK portfolio on Witan's behalf which comprises 6% of the Company's assets. We asked Derek Stuart, who manages the portfolio, for his views on the outlook for the UK market.

Plus ça change...

"Investors are constantly looking for change. This is a time of remarkable and rapid technological change, of new ways of doing almost everything - and markets offer great opportunities in those fields.

But is there also money to be made in things that do not change, especially when the outcome can be better forecast, based on the history of demand for the product or service? There is no other market where the fear of change is as explicitly ‘in the price' as the UK. The double impact of Brexit and the pandemic has weighed on it heavily, as the chart below shows. You might notice the sharp dip since the middle of 2016. So, looking at that chart, why invest here?

UK equities look cheap vs. the rest of the world


Source: MSCI, IBES, Morgan Stanley Research as at 31 December 2020.

Brexit is not over by a long way: the final outcome is still unknown. But as the proverb says, a journey of a thousand miles starts with the first step. Avoiding a ‘no-deal' feels like the first few miles are over. The pantomime leading up to Christmas was overtaken by pragmatism. Many of the companies we invest in now face more red tape. But they can operate, as they always have, on the world stage. And it is always worth remembering that the UK's stockmarket is a window on the world: two-thirds of the earnings from the top 100 companies are earned abroad. So Brexit has allowed us the opportunity to buy exposure to the world's markets at (much) lower prices than are available elsewhere.

The more immediate prospects for returns, however, may be domestic. The pandemic has changed many things. It has accelerated the structural change in society: online purchases, programme viewing, social interaction. Digital has been the beneficiary of people's isolation over the past year. The companies which provide these services have seen their share prices soar. Those that require the movement of people have suffered; and there have been significant casualties in physical retail, leisure and hospitality.

Yet the future here is more interesting. We doubt much has really changed in what people want to do. We have yet to meet (remotely of course) anyone who wants to spend more time at home over the coming months. We have yet to meet anyone whose list of what they want to do doesn't include travel, eating out, visiting a pub and meeting family and friends. We have no foresight as to when this pandemic will end, but when it does we believe consumers will revert to their old habits of socialising and travelling. And of course the number of players in these sectors has fallen – leaving more for the survivors.

The key is having the financial strength to weather the current environment. We spent most of our efforts last year identifying great businesses which we believed would be around after the pandemic and would benefit from the return to normality. We expect that as restrictions are lifted, people's hard-earned cash will move away from online to the experiences we have all missed for at least a year. There were glimpses of this last summer: when restrictions were reduced, people lined up to get into shops, pubs were full and airline bookings surged. We have been building up our holdings in all three of those areas. At some point the pandemic will be under control, and then human beings, for all the change in the world, will return to what they enjoy.

The UK stockmarket is now being valued like some structurally impaired business with a declining future. Given the market's exposure to global earnings, this appears illogical; and the current valuation looks inconsistent against other markets. Currently shunned by global investors, when that perception changes there could be a decent improvement in the UK's rating. Even if that is not recognised by investors, a queue of corporate and private equity buyers is already waiting.

So we expect significant change in 2021. Perhaps the most interesting will be how quickly we all change back to our old ways as the year progresses. Plus ça change, indeed. Mais plus c'est la même chose."

Derek Stuart
Co-Founder and Fund Manager, Artemis Investment Management LLP.
5th February 2021

Witan Investment Trust plc is an equity investment. Please note that past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of currency and market fluctuation and you may not get back the amount originally invested.

Witan Discrete Performance* 

  Q4 2015
Q4 2016
Q4 2016
Q4 2017
Q4 2017
Q4 2018
Q4 2018
Q4 2019
Q4 2019
Q4 2020
Share Price (Total Return) 18.4% 22.1% -8.1% 22.1% 2.7%
Net Asset Value (Total Return) 22.9% 19.1% -8.4% 21.3% 4.2%
Benchmark (Total Return)** 22.8% 15.5% -6.6% 20.1% 9.5%

* Source: Morningstar, percentage growth to 31st December each year. Total return includes the notional investment of dividends.
** Witan's benchmark is a composite of 85% Global (MSCI All Country World Index) and 15% UK (MSCI UK IMI Index). From 01.01.2017 to 31.12.2019 the benchmark was 30% UK, 25% North America, 20% Asia Pacific, 20% Europe (ex UK), 5% Emerging Markets. From 01.10.2007 to 31.12.2016 the benchmark was 40% UK, 20% North America, 20% Europe (ex UK) and 20% Asia Pacific. With effect from August 2020, the source for benchmark index performance changed to MSCI International, replacing the previous FTSE source. For more information go to www.witan.com/support/legal-information.

This material is a marketing communication issued and approved by Witan Investment Services Limited. The views expressed herein represent those of the specific fund manager (as at the date of publication) and not those of Witan Investment Services. No part of this material may be copied, photocopied or duplicated in any form or distributed to any person that is not an employee, officer, director or authorized agent of the recipient, without Witan Investment Services Limited's prior permission. Witan Investment Services Limited is registered in England no. 5272533 of 14 Queen Anne's Gate, London SW1H 9AA. Witan Investment Services Limited provides investment services and is authorised and regulated by the Financial Conduct Authority.

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