As Trump's tariffs hit stock markets, experts recommend you BACK BRITAIN

Recent turbulence arising from tariff uncertainties has triggered both apprehension and optimism within global stock markets. However, even amidst the recent volatile movements in the FTSE 100, both institutional and individual investors have been actively acquiring equities in well-known brands and various UK companies, signaling potential confidence in UK stock markets.

These acquisitions indicate a potential resurgence in the appeal of UK markets. Charles Luke, co-manager at Murray Income Trust, suggests they could be seen as a ‘comparatively secure refuge amidst global instability caused by the evolving tariff landscape’.

Shifting Investment Landscape

Previously, in 2024, the FTSE 100 was considered by some as a ‘museum’ of traditional sectors like banking, mining, and oil, lacking a major tech presence typical of the 21st century. Nevertheless, in the current uncertain climate of 2025, these established British entities appear to be regaining favor as investors reduce their reliance on Big Tech and seek dependable investments in established UK companies.

Impact of Tariff Concerns and Fund Flows

Prior to a recent tariff reprieve, a leading Wall Street tech analyst, Dan Ives of Wedbush, cautioned that such policies could severely impact major tech companies. While potentially exaggerated, this anxiety highlights the risks for UK investors. Notably, despite growing opportunities within the UK market , in March, British investors allocated £1.7 billion to US funds while simultaneously withdrawing £1.2 billion from UK-based funds, possibly overlooking the increasing appeal of domestic investment prospects.

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Continued Takeover Activity in UK Markets

The trend of takeovers targeting UK companies persists, exemplified by US private equity firm KKR’s planned £1.6 billion acquisition of Assura, a FTSE 250 company specializing in GP surgery properties. The offer of 49.4p per share marks a 32% premium over Assura’s February share value. Broker Peel Hunt indicates that takeover momentum increased during the first quarter, with approximately 15 companies currently subject to bids, and around half of the potential acquirers originating from international markets.

Rise in Domestic Acquisitions and Market Consolidation

Evidence suggests that UK companies are also actively pursuing acquisitions within their respective sectors, capitalizing on opportunities for expansion. For instance, Urban Logistics, a warehouse-owning REIT, recently received an acquisition approach from LondonMetric, a FTSE 100 REIT providing logistics solutions to major firms like Marks & Spencer. Urban Logistics’ share price, trading at a 23% discount to its net asset value, likely contributed to its appeal to LondonMetric, which appears to be pursuing an expansion strategy, having acquired Highcroft Investments, another REIT, in late March. Further consolidation within this sector appears probable.

Private Investors Focus on Blue-Chip Stocks for Income

Data from Interactive Investor indicates that individual investors are allocating capital to established blue-chip companies such as BP, HSBC, Legal & General, Lloyds, and Rolls-Royce. Trading volumes are reported to be robust, with a higher proportion of clients buying rather than selling, demonstrating resilience despite tariff-related market volatility. The appeal of consistent income is a significant factor, according to Richard Hunter of Interactive Investor. For instance, Legal & General offers a substantial dividend yield of 9.7%.

Flight to Quality and Belief in Undervalued UK Equities

These investment trends suggest a ‘flight to quality’, reflecting confidence in the resilience of well-established businesses. Investors seemingly believe that UK shares were undervalued even prior to recent market fluctuations, making them even more attractive investment opportunities currently.

Investment Advice to ‘Overweight’ UK Equities

Barclays is also advocating this perspective, advising clients to increase their allocation to UK equities within their investment portfolios. The bank highlights the FTSE 100’s average price-to-earnings (P/E) ratio of 17.1 times, which is lower compared to the German Dax at 23.1 times and the US S&P 500 at 24.9 times. The P/E ratio is a key metric for assessing relative value.

Considering Investing in UK Markets?

For those considering increasing their exposure to UK markets, here are potential avenues and updated guidelines for navigating the current investment landscape.

Investment Opportunities in UK Equities

Passive and Active Investment Funds

For investors with limited UK market exposure, ‘passive’ funds such as Fidelity Index, iShares UK Equity Index, and Vanguard FTSE 250 are options to consider. Major investment platforms also recommend ‘active’ funds and trusts including Artemis UK Select, City of London, Diverse Income, and RGI UK Recovery. Detailed factsheets, readily available online, provide insights into the holdings of these funds and trusts. This allows for diversification across FTSE 100 global players and smaller, domestically focused companies, emphasizing the increasing importance of portfolio diversification.

Long-Term Investments in Potentially Undervalued Shares

Investors with a longer investment horizon and risk tolerance might consider shares that have experienced significant declines. Ben Ritchie, co-manager of the Dunedin Income Growth Investment Trust, notes that ‘some companies are currently trading at valuation multiples lower than during the peak of the Covid-19 crisis.’ Ritchie highlights companies like Genus (animal genetics), Genuit (building products), Oxford Instruments (high-tech products), RS Group (industrial parts), and Safestore (storage). For example, Genus shares, at 1610p recently, are trading 50% below their level from five years prior.

Updated Investing Guidelines for Volatile Markets

Prepare for Market Volatility

Investors should anticipate continued market fluctuations. Stuart Clark, portfolio manager at Quilter Investors, emphasizes that ‘news flow can rapidly alter market sentiment, leading to swift changes in share prices’.

Stock Market Downturns are a Normal Occurrence

It is important to acknowledge that stock market corrections are a regular part of market cycles. Data from AJ Bell indicates that since 1954, a stock market decline of 10% or more has occurred roughly every 30 months, with an average recovery period of 234 days. Despite periods of being undervalued, the FTSE 100 has demonstrated resilience and recovery. For example, during the onset of the pandemic in 2020, it fell by 34.9% in 66 days but subsequently regained its value by January 6, 2023. Even after the global financial crisis of 2007, despite a recovery period of nearly five years, investors ultimately saw positive returns.

Long-Term Market Gains Outweigh Short-Term Volatility

Duncan Lamont, Head of Strategic Research at Schroders, highlights the long-term growth potential of stock markets, noting that even after recent market declines, global markets have doubled in value over the past five years. An investment of $10,000 (£7,660) in the stock market over this period would have grown to $20,700 (£15,856), significantly outperforming cash, which would have only grown to $11,400 (£8,732).

Employ Pound-Cost Averaging through Regular Investing

To mitigate risk, consider making regular monthly contributions to investment funds or trusts. This ‘drip-feeding’ approach, known as pound-cost averaging, helps navigate market volatility. By investing a fixed sum regularly, when market prices are lower, you acquire more shares, reducing the average cost of your investment over time.

Consider Safe-Haven Assets Like Premium Bonds

For investors prioritizing capital preservation or seeking to accumulate funds for future market opportunities, National Savings & Investments (NS&I) offers secure options. Premium Bonds, offering instant access to capital, currently provide a prize fund rate of 3.8%. These returns are also tax-free, making them particularly advantageous for higher-rate taxpayers.