Rathbone UK Opportunities Fund manager highlights opportunity of

Even ignoring the FTSE 100’s lurches lower in the past week, as a headline index it is not the best advert for the UK as an investment market.

It’s choc-a-block with companies that either don’t look particularly exhilarating from the point of view of sustainability or earnings growth, with heavy representations from oil, mining, airlines, cigarette makers, banks, insurers, cardboard box makers and water companies.

What’s more, the UK’s attractiveness for global investors has also been heavily muddied by the difficulties and ongoing uncertainty of Brexit.

But, as Alexandra Jackson, manager of the Rathbone UK Opportunities Fund, says, if you ignore the whole blue-chip index and indeed the whole of the London market for these reasons you would miss out on some companies with fantastic growth records and considerable potential.

“The UK has many game-changing, world-leading companies that are as good or better than their global peers,” Jackson says.

“And at the moment the UK is very, very cheap.”

The London stock market is in fact currently trading at around a 30-year low on the basis of its average price/earnings multiple versus the P/E of the rest of the world.

And the last two times that the UK was this cheap, she points out, it went on to beat the global benchmark over the next 12 months.

“The political instability and uncertainty that we’ve had in recent years has kept people on the sidelines,” Jackson says. “Global investors have thought, ‘I’ve got the whole world to look at, so why bother with this unstable place?’

“But I think that’s actually provided an amazing opportunity, if you know the right places to look.”

Last year, as US corporations awoke to the value available for takeovers of UK companies, we were given a flash of the sort of powerful re-rating that Jackson predicts could be around the corner when some of the winter worries dissipate and companies return to thinking about cross-border deals again.

“I think the M&A surge last year really highlighted to global investors how cheap the UK market is, which is helped by people getting a bit nervous about valuation multiples in the States.”

Some investors have clearly been tempted by the previously depressed high street banks and the high street retailers, but Jackson argued that these investments, and high yield mining or energy companies, might make some money over a quarter or two.

“In three to five years when you look back, I think you’d struggle to imagine how those cyclical names have generated long-term alpha and are going to be multiples of where they are now.”

As Jackson says, her fund’s aim is to get in on the ground floor or the first floor with a mid-sized UK company as they grow, while also giving access to “the full potential” of the UK stock market, with the team…