Is it time to look at the UK?

By Mike Toolan & Joshua Herson

Column inches and emotive headlines have been dedicated to the decision, by a number of high profile UK Investors, to materially change their allocations to UK assets in favour of US assets. Headlines touting the continued demise of London as a world leading financial centre to patriotic criticism for lack of support for ‘our domestic market’, continue to cause concern for investors. While all interesting perspectives, we approach it from a slightly different angle.  

Our first priority for our clients, regardless of risk profile or specific mandate, is to generate the best possible risk-adjusted returns. While we fully appreciate the need for a healthy and well capitalised London market to provide working capital for private business – a critical part of the UK domestic economy – our fiduciary duty of care is to our clients and their financial security, not the UK economy.
The US stock market gives investors access to world leading businesses, but this typically comes at a price. Undoubtedly, we want meaningful exposure here, but we know we need to tread carefully. The most enduring correlation in financial markets is the relationship between the price you pay for an asset and the longer-term returns you get from it. This is often overlooked by a common mistaken belief that buying a great business automatically means that you will get great returns. Microsoft is the most valuable company in the world today and therefore arguably the ‘best business’ but had you bought it at its high in the TMT bubble in 1999, you would have had to wait 17 years to be up on your investment. Price matters more than any other factor.

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