Welcome back to the FTSE350 Tip column at Armchair Trader where we aim to provide market beating returns by picking the best opportunities within the UK markets.
The UK market has remained broadly flat, for a subdued start to the month of December as the market awaits news on the ongoing interest rate policy set by the Bank of England. The headlines in the UK recently have centred on the ongoing exodus of companies from the UK stock exchange, with one of the biggest companies on the market, and indeed a member of our portfolio - Ashtead PLC [LON:AHT] - being the latest to move its primary listing state-side.
This has been matched by an equally glim number of listings on the London market, failing to replace the outbound capital, and the gloom is somewhat reflected by the 20% drop in the value of ‘premier listing’ Canal+ [LON:CAN] on the opening day of its LSE listing this week.
- McBride shares up over 20% as dividends are restored
- Short of the Week: D’Ieteren shares sagging under new debt structure
- Polar Capital Technology Trust outpacing the market
It’s true, there is a lot of pessimism out there for UK markets, and some might suggest that things are only going to get worse, given the unavoidable rise in passive investing, diverting capital to U.S momentum focused strategies and the fierce competition for listings on other more attractive exchanges.
What does this mean for the UK investor?
To a great extent capital outflow from the UK has been going on for a number of years, eroding valuations for many listed companies. The assets under management (AuM) of the UK fell by approximately £1 trillion from £10 trillion in 2021 to £9 trillion in 2023, and the allocation of funds to UK domiciled companies has steadily declined.
Given the situation at hand, it is fairly simple to reason that with less liquidity in the UK system, competition for investor capital is high. Institutional investors are having to make tough decisions and reduce holdings amid fund redemptions and this leads to funds keeping hold of the best businesses and ditching the poor performers. It is with this dynamic that I believe investors should position themselves, where possible in unique, well run businesses, that do not have many listed peers that compete for capital, and importantly perform very well in terms of growth and profitability. This way investors can insulate themselves from much of the ongoing outflow, and hopefully outperform the market.
A good example of this could be found in the newly promoted FTSE 100 constituent Games Workshop [LON:GAW]. I am sure many of you know the company behind the Warhammer tabletop franchise. GAW is about as unique as one can get on the London (if not global) market, with a strong fantasy miniatures business, rich intellectual property developed in-house, a seriously lucrative royalty business and most importantly of all - a customer base that is fanatic about its product. GAW shares are up 35% YTD and 125% on a 5 year basis. GAW is not currently a holding in the FTSE 350 portfolio.
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