60 seconds on the most attractive sectors in the UK

Survey data shows that asset allocators are underweight UK equities, primarily because of the risks that Brexit poses to the economy, as well as the unstable political backdrop.

However, it is worth reminding investors that only one-third of the UK stockmarket is exposed to the UK economy.

Domestic valuations reflect risks

Although we remain cautious on the outlook for the UK economy, we are starting to find some domestic opportunities emerge.

We note that a lot of this negative sentiment and uncertainty is reflected in sterling weakness, in GDP forecasts, in relative earnings revisions, and crucially in low valuations.

Opportunities in financials and commodities

Outside the domestic part of the market, we’re finding opportunities in sectors like financials and commodities.

Here we see a combination of low expectations, cheap valuations and fundamentals that are generally improving.

Cautious on consumer staples

Conversely, we are far more cautious on the outlook for the consumer staples sector, where we see high expectations, expensive valuations and fundamentals deteriorating as organic sales growth declines.

We are also seeing increasing levels of debt as management teams pursue risky merger and acquisition strategies.

See also:

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.