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UK Market Outperforms in Value, with UK Large-Cap Value Funds Leading the Way

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UK Tech Market Shows Disparity in Global Rankings
A recent analysis of the UK market reveals an interesting disparity compared to the global market when it comes to technology companies. While technology is the largest sector in the global market, making up over 27% of the FTSE All World index, it accounts for less than 4% of the FTSE All Share in the UK.

Vodafone, with a market cap of $26.7 billion, is the largest tech company in the UK, followed by BT Group with a market cap of $14.2 billion. However, in the global market, the largest tech giants, such as Apple and Microsoft, dominate the S&P 500, with the first non-US entry being Taiwan Semiconductor in eighth place. Vodafone, on the other hand, is much further down the list.

In contrast, financials make up 23% of the UK index and just under 15% of the global market. Energy, primarily represented by Shell and BP, accounts for 11% of the UK market and just under 8% of the global market.

The data suggests that in a value-driven market, the UK market should outperform due to its higher exposure to financials and energy sectors. However, this is not always the case. Over the past five years, the FTSE UK Growth index has outperformed its value equivalent by a significant margin.

Examining quarterly returns over the same period reveals considerable volatility and fluctuations in performance between growth and value indices. This highlights the importance of considering different factors, such as growth, core, value, and market cap size, when investing in the UK market.

To gain further insights, UK equity funds were analyzed using Lipper’s Global Holdings Based Classifications. This quantitative model breaks down fund equity allocations by geography, style, and market cap, providing a transparent comparison for performance and risk.

Surprisingly, the fund categories did not simply mirror the index returns over five years. Market cap effects seemed to outweigh style, with large-cap funds outperforming across the board. Additionally, within the large-cap category, value funds outperformed growth funds.

In 2022, the performance trend continues, with large-cap funds leading the way, followed by multi-cap and mid-cap funds. The top-performing classification so far this year is UK Large-Cap Value, indicating a shift away from high-PE growth stocks due to rising interest rates.

This analysis provides valuable insights for categorizing funds based on factors like market cap and style. It also helps identify funds that stand out from their peers due to their unique investment strategies.

As with all investment analysis, it is important to consult with a qualified professional for personalized financial advice. The views expressed in this analysis are those of the author and not necessarily those of LSEG Lipper. This material is intended for educational purposes only and should not be considered investment research or advice. LSEG Lipper cannot be held responsible for any direct or incidental loss resulting from the application of the information provided.

More detail via Seeking Alpha here… ( Image via Seeking Alpha )

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