Sticky inflation continues to be a key challenge for investors. While inflation in the US has continued its steady downward trajectory, in the UK it’s proving more difficult for the Bank of England (BoE) to control.
While headline inflation in the UK has been falling, core inflation, which excludes energy, food, alcohol and tobacco, has been more difficult to tackle, though it’s dipped in the 12 months to June.
These goods have volatile prices and are influenced more by taxation than interest rates – so core inflation is seen as giving a good snapshot of how prices are changing in the wider economy.
The UK is suffering from a combination of energy related problems and a tight labour market – a rise in early retirements, long-term sickness and Brexit are all contributing to higher inflation here than elsewhere.
How has the stock market responded?
The BoE have raised rates 13 times in a row, with rates now sitting at 5%.
This ongoing battle to get inflation down has knocked share and bond prices, sending bond yields higher. This reflects investor expectations of higher interest rates remaining in place for longer.
As the BoE battle to get inflation closer to target, some interest rate forecasts for the end of 2023 have risen as high as 6.5%.
Despite seeing some short-term weakness, areas of the UK stock market have been resilient over the last year. The FTSE 100, representing the 100 largest companies listed in the UK, has risen by 9.15%* over the last year.
However, around 80% of the revenues of these large companies are generated overseas. This shows how global these businesses are and means they aren’t just reliant on the strength of the UK economy.
Smaller companies haven’t been so resilient. The FTSE Small Cap ex Investment Trust index fell by 0.35% over the last year. These businesses are more UK orientated. That means higher interest rates and an underwhelming growth outlook here pose more of a challenge to their prospects.
Is the UK still an attractive place to invest?
There’s been lots of talk about companies listed on our home stock market trading at a discount to some of their international competitors and others choosing to list on markets overseas.
It’s true that the UK stock market is trading cheaper than other major markets and versus its own history. Most sectors are valued below their historical averages and valuations are particularly low among smaller companies which have been hit hard by the rate rising cycle.
We think some important factors are being overlooked. When you get used to things being there, it’s easy to take them for granted. The UK has long had a good reputation for investment, built on its effective regulatory framework, its respect for the rule of law and its focus on shareholder value.
These factors have enabled the UK stock market to be home to many world-class companies. From international giants selling their products and services across the globe to a diverse array of smaller businesses.
While the dividend yields on offer in the UK have historically exceeded those of other developed markets, it’s not just a value orientated income market. We see plenty of capital growth opportunities for investors too.
The UK is home to some exceptional fund managers with great track records of adding value. We’ve selected those we think have the greatest long-term performance potential on our Wealth Shortlist.
How have our Wealth Shortlist funds performed?
Our Wealth Shortlist selections delivered mixed performance over the past year, although we usually expect this from what is a wide range of funds.
Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term diversified portfolio.
For more details on each fund and its risks, see the links to their factsheets and key investor information below. Past performance isn't a guide to the future. Investments and any income they produce can fall as well as rise in value, so you could get back less than you put in.
UK Growth
The best performing fund in the UK Growth section of the Wealth Shortlist over the past year was the Liontrust UK Equity fund.
The fund delivered a return of 12.31%, 4.42% ahead of the FTSE All Share index and 6.33% ahead of the IA UK All Companies sector average.
This fund blends more established companies that have consistently grown profits, with those that have been through a difficult time but have the potential to recover.
AXA WF UK Equity was the weakest performer of our Wealth Shortlist selections in this sector – returning 1.25% to investors.
The manager invests more in higher-risk small and medium-sized companies than some other funds in this sector. These haven’t held up as well as larger companies, hurting performance.
Annual percentage growth
| Jun 18 – 19 | Jun 19 – 20 | Jun 20 – 21 | Jun 21 – 22 | Jun 22 – 23 | |
|---|---|---|---|---|---|
| Liontrust UK Equity | -6.72% | -11.39% | 24.91% | -9.84% | 12.31% |
| AXA WF UK Equity | 3.17% | -6.90% | 23.31% | -15.52% | 1.25% |
| FTSE All-Share | 0.57% | -12.99% | 21.45% | 1.64% | 7.89% |
| IA UK All Companies | -2.09% | -11.11% | 27.46% | -8.57% | 5.98% |
Past performance is not a guide to the future. Source: *Lipper IM, to 30/06/2023.
More about Liontrust UK Equity, including charges
Liontrust UK Equity Key Investor Information
More about AXA WF UK Equity, including charges
AXA WF UK Equity Key Investor Information
UK Equity Income
The best performing fund of our UK Equity Income selections over the last year was the Janus Henderson UK Responsible Income fund, managed by Andrew Jones. The fund returned 8.39% over the year, 0.50% ahead of the FTSE All Share index which rose by 7.89%.
This is an exclusion-based fund which avoids areas like tobacco, alcohol and oil & gas and could therefore offer some diversification to a traditional equity income portfolio.
Our worst performing UK Equity Income selection over this period was the Trojan Income fund, managed by Blake Hutchins.
The fund had a difficult year, lagging the FTSE All Share index return by 3.85%.
Though disappointing, we expect the fund to hold up better than the index in falling markets, and to lose ground in a rising market.
Annual percentage growth
| Jun 18 – 19 | Jun 19 – 20 | Jun 20 – 21 | Jun 21 – 22 | Jun 22 – 23 | |
|---|---|---|---|---|---|
| Janus Henderson UK Responsible Income | 2.83% | -6.85% | 22.88% | -6.03% | 8.39% |
| Trojan Income | 4.33% | -5.44% | 8.32% | -6.80% | 4.04% |
| FTSE All-Share | 0.57% | -12.99% | 21.45% | 1.64% | 7.89% |
| IA UK Equity Income | -2.73% | -13.58% | 25.49% | -0.24% | 3.98% |
Past performance is not a guide to the future. Source: *Lipper IM, to 30/06/2023.
More about Janus Henderson UK Responsible Income, including charges
Janus Henderson UK Responsible Income Key Investor Information
More about Trojan Income, including charges
Trojan Income Key Investor Information
UK Small & Mid–sized Companies
The strongest performer in the UK Small & Mid-sized section of the Wealth Shortlist over the past year was the FTF Martin Currie UK Mid Cap fund, generating a return of 4.33%.
The managers invest in medium-sized companies within the FTSE 250, often considered the ‘sweet spot’ between company growth potential and maturity.
Richard Bullas is an experienced small and medium-sized company investor, and he has the support of a team we rate highly.
The TB Amati UK Smaller Companies fund had a testing year, losing 14.38%. It was the weakest performer of our Wealth Shortlist selections in this sector.
The fund’s exposure to higher risk smaller growth businesses has hurt performance in a rising interest rate environment. We think lead manager Paul Jourdan is a talented and experienced smaller companies investor with the potential to deliver attractive returns over the long term.
Annual performance growth
| Jun 18 – 19 | Jun 19 – 20 | Jun 20 – 21 | Jun 21 – 22 | Jun 22 – 23 | |
|---|---|---|---|---|---|
| FTF Martin Currie UK Mid Cap | -1.01% | -10.92% | 30.40% | -18.06% | 4.33% |
| FTSE 250 ex ITs | -5.85% | -13.32% | 36.71% | -16.10% | 2.95% |
| TB Amati UK Listed Smaller Companies | -4.56% | -1.95% | 46.21% | -21.37% | -14.38% |
| FTSE Small Cap ex ITs | -8.63% | -12.29% | 65.20% | -14.64% | -0.35% |
| IA UK Smaller Companies | -6.05% | -5.63% | 53.25% | -22.61% | -5.85% |
Past performance is not a guide to the future. Source: *Lipper IM, to 30/06/2023.
More about FTF Martin Currie UK Mid Cap, including charges
FTF Martin Currie UK Mid Cap Key Investor Information
More about TB Amati UK Smaller Companies, including charges
TB Amati UK Smaller Companies Key Investor Information
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Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.