Why there are plenty of opportunities among UK equities

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

Imran Sattar, Portfolio Manager of Edinburgh Investment Trust, and Emily Barnard, Deputy Portfolio Manager, take a flexible investment approach because investment styles come in and out of fashion, with economic and market cycles impacting them positively and negatively. They seek to find companies that can grow profits and dividends over the next three to five years. 

These are the latest views from Imran and Emily. 

“Our focus remains on stock picking and constructing a high conviction balanced portfolio of advantaged businesses, to perform whatever the economic weather. There are, however, also macroeconomic considerations to think about. The recent easing in inflation rates is providing a better backdrop for looser monetary policy, and the market is pricing in a number of rate cuts through this year. Whilst this should be supportive to improved confidence and an improved cost inflation outlook for businesses, we are mindful of headwinds to global growth in the medium to long term. In particular, we are alert to economic headwinds in China, future demographic challenges, rising political polarisation, and increasing geopolitical uncertainties. This is why our focus remains on owning businesses that have structural growth tailwinds, are market share winners, or with an element of self-help to drive profit and cash flow growth. Ultimately, that’s where our confidence comes from: strong businesses run by smart management teams executing their business plans.

There are many world class businesses trading on attractive valuations in the UK. The growth outlook is a little bit better, such that the UK is very much in the pack versus the rest of Europe. And on the political spectrum, again, we don’t appear to be an outlier versus Europe. This means the valuation gap between the UK and other stock markets over time should close. 

There are a number of areas where we have been finding interesting investment opportunities such as in the data and analytics thematic, with positions in London Stock Exchange Group (market-leading financial data company), Baltic Classifieds Group (leading Eastern European digital platform) and Auto Trader Group (market-leading used car digital platform). We also have positions in Admiral (insurance) and Whitbread (owner of Premier Inn), amongst others, that are second-order beneficiaries through the use of data and analytics to improve their competitive position. Expect more exposure here going forward as the structural growth dynamics of data are very powerful and of long duration. 

In retail, we have positions in retailers such as Dunelm and Greggs. These are all well-run businesses and gaining market share with a strong focus on value for money for consumers.

The opportunity set in the UK is plentiful, there are attractive valuations and we remain very optimistic on the outlook for Edinburgh’s portfolio of stocks.” 

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Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

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