UK Equities – a new era of investment returns

The investment community must begin to accept the fact that the days of regular double digit annual returns have become a thing of the past

Investors need to reset their investment return expectations from UK equities, says Colin Morton, portfolio manager of Franklin UK Managers' Focus Fund

UK Equities – a new era of investment returns

UK Equities – a new era of investment returns

As we face up to the very realistic prospect that we are likely to be trapped in a macro environment of low growth and low interest rates for many years to come, the investment community must begin to accept the fact that the days of regular double digit annual returns have become a thing of the past.

Interest rate rises

Yesterday’s decision by the FED again made apparent the lack of clarity that decision makers have around the timing of potential interest rate rises, highlighting the fact that no one really has any idea when and to what extent any changes will come.

With forward guidance providing no accurate insight we are working under the assumption that the current macro landscape will embed itself for some time and we’d be surprised to see any tangible boost to the UK economy in the coming months.

Defensive stocks

Against this backdrop, the valuations of reliable and defensive stocks are reaching new highs and we expect that paying up for quality will become the new norm. With cash and bonds offering little excitement, companies that provide relatively low risk prospects of both capital growth and income are becoming increasingly full in valuation, leaving undervalued, quality companies that much harder to find.

Resetting of expectations

Of course things change, and we remain poised to capitalise if they do, but we’re still likely to see a resetting of expectations amongst investors over the remainder of this year as they face up to the new era of investment returns.

Return of Equity Release Investments Calculations

To calculate ROE, analysts simply divide the company’s net income by its average shareholders’ equity. Because shareholders’ equity is equal to assets minus liabilities, ROE is essentially a measure of the return generated on the net assets of the company.

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