The other sector differences seem unlikely to compensate because they simply aren’t big enough. Global also has both a lower 12-month standard deviation (3.5 versus 4.5) and a lower beta (0.73 versus 1.06) compared to UK Equity Income.
Over the course of all main reporting periods—from one to 20 years—global beats UK. Some of this may be fallout from the selling pressure that UK equities have been under throughout the course of the century, as pension funds shifted from equities to bonds, and UK investors across the board reallocate from domestic to foreign equities: something we’ve taken a deeper dive into here.
There’s certainly a case to be made for UK equities from both a valuation and dividend perspective, which has been unfolding over the past year. This plays to UK Equity Income’s more “traditional” flavour from a sector perspective which should be working in its interest, as does the greater role that dividends pay in the UK—the highest of any global stock market. This is reflected in the weighted dividend for UK Equity Income, 4.38%, as opposed to 3.02% for its global equivalent for the year to the end of February. The compounding effect of those dividend payments really matter over time, as can be seen by chart 3, comparing the FTSE 100 total return against the index’s return on a price-only basis—247.5% versus 65.6% over 20 years to 28 February 2023.
If this elevated rate environment remains in place, coupled with energy scarcity—as is the consensus—then an abatement of selling pressure on UK equities could well put the pieces in place for a recovery of UK Equity Income.
Dewi John is head of research for UK and Ireland at Refinitv
