Management teams at UK listed companies are increasingly disregarding the "clamour" for income from investors, according to the manager of the JOHCM UK Opportunities fund.
Rachel Reutter said that since the Covid pandemic, UK companies had developed more of a "backbone" to stand up to the investor pressure for dividends.
This, she said, could help reinvigorate UK equities which have faced an extended period of outflows.
Reutter said: "One of our major issues as a fund has been mangement teams and the clamour for yet more income.
"We as a fund have always encouraged management teams to invest for future growth. UK PLC is not a cash point. If you take it all out of the wall there is nothing to put into the company. There has been an overemphasis on dividends in the UK.
"Covid was a wake up call for UK PLC. We are seeing rising rates of CEO turnover and as we come out of the Covid period there is that need to potentially take a bit of a restock and focus back on the balance sheet and reinvesting.
"We are suffering from past underinvestment but post-Covid that has changed. I believe companies have changed their approach."
UK companies have traditionally focused on paying dividends to a much greater extent than those in other regions.
The dividend yield on the FTSE All Share is currently 3.74 per cent while for the S&P 500 it is 1.49 per cent.
But the S&P 500 has outperformed the FTSE All Share over the past decade on a total return basis - returning 279 per cent compared to 78 per cent.
Reutter said that despite the perception the UK market was full of "old economy" income paying stocks, there were options out there for growth.
She said: "You only get that old economy portfolio if you buy a tracker. The opportunity in the UK is to find the interesting pockets.
"In the FTSE 350 there are three times as many media and tech companies as there are banks. What we see if we break that FTSE 350 down by sector is that you have got a much better picture than people think."
Over the past year the UK All Companies sector has seen more than £10bn in outflows - a trend which dates back several years.
But Reutter said this could U-turn quickly triggered by the undervaluation of UK equities.
She said: "We’ve got pension funds out there with 2 per cent allocation to the UK. I’ve met clients with zero allocated to the UK and even if they take that back to 5 per cent then that is a huge wall of assets."
damian.fantato@ft.com
