Invesco’s Anness: UK has too many value traps for a global investor like me

The FTSE 100 is dominated by ex-growth oil, healthcare and telecom stocks whose share prices have essentially gone nowhere in the past 20 years, says Invesco’s Stephen Anness.

Stephen Anness, manager of Invesco Select Trust’s global equity income portfolio (IVPG ), is pleased that he switched from UK to global equities in 2009. He says too many companies in the UK’s FTSE 100 index are in ex-growth sectors such as oil, healthcare and telecoms. Their share prices, excluding dividends, have essentially gone nowhere during his career, which is why he prefers to take a worldwide search for businesses that can invest for the future and support rising dividends.

This is the fourth and last video from our recent event with Invesco Select. If this one has whetted your appetite, you can watch the previous excerpts on 3i Group and its discount retailer Action; Anness’ experiences with ‘staggering’ Nvidia; and why he backs rival chip-maker Broadcom

Alternatively, you can watch the entire programme in this Big Broadcast

Can’t watch now? Read the transcript

Gavin Lumsden:

So, it’s not a play on the UK economy, but the UK market is a good place to find cheap, good-quality stocks. Is it?

Stephen Anness:

I started 22 years ago on the UK desk, as I mentioned. I moved to global about ten years ago. I would say that in the UK, there are some very cheap stocks, but as in many markets around the world, often those stocks are cheap for a reason. A lot of those companies are broadly the same share price as when I started my career two-and-a-bit decades ago. Some of them have paid a decent dividend on the way, but many of them lack the characteristics that I’ve talked about in terms of Broadcom or 3i. Businesses that are able to grow, reinvest and pay a growing dividend. So, I think in some of the sectors that are quite dominant in the UK, some commodity sectors. Some large-cap healthcare, telcos for instance. They’re hard industries to actually really generate decent levels of earnings and free cash flow growth out of. 

So yes, there are some assets in the UK market that I think are appealing and we’ve touched on some of them, but I do think that the notion of looking at the UK and saying the headline PE [price-earnings ratio] of the UK market and the dividend yield of the UK market look appealing in the context of wider markets is a bit misleading. I do think some of those companies and significant index weights, some of those are most definitely what I would describe in value trap territory. They’re definitely cheap, but I think they’re cheap for a reason and you will probably end up with a broadly similar share price five years from now.

Gavin Lumsden:

So, the poor performance of the FTSE isn’t because investors are shying away from the UK market?

Stephen Anness:

I think it’s a constituent issue of what’s in the market, yes.

Gavin Lumsden:

Have you been surprised there hasn’t been more tactical allocation? I was thinking you were keener on the UK, but you’re not surprised that there hasn’t been more tactical allocation on the idea of the UK being cheap.

Stephen Anness:

No. If you look at it in the way I look at it, no.  I think it’s rational, absolutely. I do think other markets, some of the US are getting extended and things. I’m trying to find 40 to 45 companies globally, out of thousands that we can look at. There are always interesting things going on. There are some great companies in Asia. There are some interesting companies in Japan. That has certain nuances as well. In America, once you move beyond some of the very large-cap, highly talked about companies, there are some brilliant companies slightly further down the market-cap spectrum. Slightly amusingly, they’re often described as mid-cap, but they can often be $25bn companies. Some of them are amazing with brilliant competitive advantages, excellent management teams and laser sharp focus on capital allocation and shareholder value creation. Those are the kinds of companies that we’re looking for.

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