UK equity ‘dark age’ reflects alarming desertion
London: If the British government is trying to steer more domestic investors back into unloved UK stocks, it has a mammoth task on its hands given the scale of the desertion over recent years.
In his budget speech this week, finance minister Jeremy Hunt unveiled a new “UK ISA”, or Individual Savings Account, that allows individuals to invest 5,000 pounds ($6,403) tax-free in UK equities annually, in addition to the 20,000 pounds allowed under existing tax-free ISA schemes.
Hunt reckoned this meant that “British savers can benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand”.
Downplaying the impact of the tweak, many experts reckoned the added incentive to stay local would only likely appeal to a small proportion of investors already maxed out on ISA limits.
But what it did serve to do is spotlight just how increasingly unwanted British stocks are even among Britons – who, unlike Americans for example, appear to be abandoning any sense of ‘home bias’ as they drift away from actively managed UK funds to cheaper and more globally-spread index trackers.
A spiral seems to have ensued as persistently lagging UK performance merely tempts savers further into overseas funds – cutting demand for new UK equity fund launches, which have dwindled in favour of shiny new global offerings instead.
The problems of the British economy over the past decade are well documented of course – not least due to outsize hits from the banking crash of 2008, the protracted and messy exit from the European Union, and the pandemic and subsequent energy shock more recently.
For many global fund managers, UK exposure has become a far less significant part of portfolios and many even bat away questions on the whys and wherefores of British markets.
At its most basic, the startling underperformance of both the blue-chip FTSE100 (.FTSE), opens new tab index of largely globally-exposed UK stocks and the FTSE250 (.FTMC), opens new tab index of mid-sized domestic-facing stocks over the past decade speaks volumes.
In sterling terms, both the FTSE100 and FTSE250 have gained a meagre 13-17% over the past 10 years compared to the 260% boom in Wall Street’s S&P500 (.SPX), opens new tab, a near quintupling of the tech-laden Nasdaq (.IXIC), opens new tab, a 140% rise in Japan’s Nikkei (.N225), opens new tab and even a 62% jump in the eur