Clive Beagles, Senior Fund Manager of the JOHCM UK Equity Income Fund, has shared his latest thoughts with us, as he highlights the value appearing in domestically orientated, mid and small caps in the midst of the market frenzy saying:
“Amidst all the noise this week, the most important development for the U.K. is the significant fall in bond yields across the durations spectrum. 2 year bond yields are down 30 bps this month after they were already at their lowest level for 6 months.
“This reflects the likely impact of these tariffs being deflationary in the U.K. Slower global growth, a stronger Sterling vs the dollar and other countries possibly selling their products in the U.K. rather than the US at lower prices, could all see lower inflationary pressures.
“This should allow the Bank of England to look through the current slightly elevated inflation prints and continue to ease monetary policy. With savings ratios abnormally elevated in the U.K. ( they were 12% in Q4 2024 vs typically 5-6% pre Covid ), falling interest rates are likely to see pent up spending power released even if the global backdrop is uncertain.
“Many consumer facing stocks have already begun to see better trading ( Curry’s, Wickes, Next, DFS ) and this is likely to improve further in this monetary easing environment. Valuations here and in the wider housing market value chain continue to be very modest and is where investors should be concentrating their attention.
“The underperformance of domestically orientated mid and small cap stocks so far in 2025 looks particularly anomalous.”
