By David Clark

An interesting question for UK investors for

the rest of 2021 is whether the UK can shake

off its unwanted badge of (dis)honour as the

only major stock market in the world with negative performance over the last 12 months: minus 3.9 per cent as of the end of February.

There are many reasons for this and one of them is certainly that the FTSE 100 is probably the dullest index on the planet. It is full of old industrial companies, utilities, oil companies

and retailers with hardly a showing of “new economy” technology stocks and the type of high-growth companies that some of FTSE’s global competitors have in spades.

These “old economy” companies have not been performing well for some years and it is leading many market commentators to suggest that it may be time for British the UK large-cap value stocks to enjoy a serious bounce-back.

Indeed, the last couple of months have seen some high growth and momentum stocks on NASDAQ suffer from profit taking. This has led to the UK market benefitting from its lower exposure to higher growth sectors, especially technology, in the last couple of months.

There can be little argument that many of these companies are on extremely large discounts compared to their global peers on pretty much any valuation measure.

Interestingly, the composition of the FTSE 100 may change over 2021 with Deliveroo looking to float in the spring.

There have been rumours, too, that Checkout, a payments’ processing company valued at around $15 billion, may also be looking to list as are companies such as Monzo and Revolut, the finance app. This would alter the character of the index and, perhaps, its performance.

However, it will take a bit more than adding some tech-style growth to get the UK market moving, though it now looks as though market participants are waking up to the excellent value that the UK market offers within a global context. As a result, value stocks have been outperforming in 2021 to date.

Asset allocators in large institutions have shunned the UK for some time and are showing little sign of investing more cash into the UK. They have said they need to be confident the dearth of strong returns is coming to an end before they will commit to backing a UK recovery with their clients’ money. It seems that they may have been wrong-footed by the recent bounce back.

Of course, we have seen short-lived rallies before, but this has the look and feel of something more substantial and sustainable.

After all, despite the sharp rises in prices, these so-called value stocks remain stubbornly cheap and have a long way to go to make up the ground that they have lost over the last 10 years or so.

This has come as a relief, if not exactly a surprise, to those fund managers who remain committed to the notion that valuation actually matters – Saracen among them.

It has long been said that it is a mug’s game to try to time the market. A much more reliable and robust strategy would be to define your investment process, preferably one rooted in reality, and stick to it.

However, the macro-outlook is not universally favourable and is subject to change. Only last week the Chancellor announced corporation tax rates will be increasing from 19% to 25% from April 2023.

A rise was expected but not one of this magnitude. This will hit the earnings of pretty much all quoted companies, value and growth alike.

This is to say nothing of the potential re-emergence of inflation, poor consumer confidence, an economy devastated by the Covid pandemic, a shocking deficit and the continuing havoc on industry that Brexit is inflicting.

Despite all these contradictory signals it is now looking more likely that the UK market will have a decent 2021.

At its core, the stock market is a discounting mechanism and it is finally doing what it is supposed to do – to fairly and accurately reflect the future prospects of quoted companies by moving their share prices to correct any mispricing. It is heartening to see it at work.

David Clark is UK investment manager

of Saracen Fund Managers.