Four Reasons to Watch UK Equities
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Four Reasons to Watch UK Equities

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The following content is sponsored by BlackRock.

Over the past several years, UK equities have traded at a relative discount compared to other developed markets. This was largely due to ongoing Brexit negotiations, where uncertainty around trade deals and other legislation created significant headwinds.

Fast forward to today, and much of the uncertainty has passed. Does this mean it’s time to invest in the UK?

Looking Ahead

This infographic from BlackRock covers four reasons for why investors should consider an allocation to UK equities.

UK Equities infographic

So, why should investors consider an allocation to UK equities?

#1: The UK Market Is Not the UK Economy

The UK equity market is represented by many leading multinational companies from a variety of sectors.

For example, consider the FTSE All-Share Index, which contains over 600 companies listed on the London Stock Exchange. As of March 31, 2021, 72.5% of these companies’ total revenue was derived from outside of the UK.

A large share of overseas revenue provides investors with exposure to a range of global themes, where outcomes are not dictated by the UK economy itself.

#2: Business Activity is Ramping Up

The confirmation of a Brexit trade deal has provided UK companies with clarity around the rules of engagement, as well as the confidence to look ahead.

As a result, the UK has been ranked as the most attractive place in Europe for future investment.

CountryWhich country do you believe will be
the most attractive for foreign investment in 2021?
(% of respondents) 
UK43%
France31%
Germany28%
Italy26%
Spain20%

Based on the results of 550 C-suite interviews. Source: EY (2021)

This optimism has also spread to the UK equity market, where initial public offering (IPO) issuance in the first half of 2021 has already exceeded the entirety of 2020.

YearNumber of IPOsMoney Raised
First half of 202147£3.5 billion
202035£3.1 billion
201933£2.9 billion

Source: London Stock Exchange (2021)

Among those 47 IPOs were a number of high profile tech companies including Moonpig (online greeting cards), Darktrace (cybersecurity), and Deliveroo (food delivery).

The UK’s venture capital scene is also thriving, with U.S.-based Sequoia opening its first European office in London. Sequoia was an early investor in world-class businesses such as Apple, Google, and Airbnb.

#3: UK Firms are ESG Leaders

UK companies have historically been early adopters of environmental, social, and governance (ESG) practices. In fact, 45% of FTSE 100 companies have begun integrating ESG metrics into their executive compensation schemes.

UK firms are also leaders in gender diversity, consistently tracking ahead of other developed markets.

Year% Director Seats Held by Women (UK)% Director Seats Held by Women (MSCI World Index)
201625.3%19.1%
201726.8%20.4%
201829.1%21.6%
201931.7%25.0%
202034.3%26.2%

Source: MSCI (2020)

This leadership may bring further interest to the UK equity market, especially as awareness around social issues continues to rise.

#4: UK Equities Can be a Compelling Source of Income

Over a 10-year time frame, UK dividends rates have exceeded those of other global markets.

Country/RegionDividend Yield (as of Sept. 30, 2021)Dividend Yield (10-year median) 
UK3.7%3.9%
Eurozone2.2%3.2%
Japan2.0%2.1%
EM2.2%2.7%
World1.7%2.5%
U.S.1.4%2.0%

Source: Barclays Research, Refinitive (2021)

This outperformance even lasted through the COVID-19 pandemic, when dividend rates around the world were rebased (a term used for dividend cuts).

Beware of Zombies

While these factors provide UK equities with an attractive backdrop, the presence of zombie companies has dragged down the performance of the overall market.

Zombie companies are ones that are close to insolvency and do not generate enough profits to pay off their debts. Their survival is only made possible due to record low interest rates, which allows them to continue borrowing instead of shutting down.

So how many zombie firms are operating in the UK equity market?

According to Onward, a UK-based think tank, roughly one-in-five UK companies had become zombified in March 2020. Because of this, investors may find an actively managed approach to be beneficial. Unlike an index ETF, actively managed funds have the ability to avoid unprofitable businesses.

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Retirement Spending: How Much Do Americans Plan to Spend Annually?

Retirement expenses can vary significantly from person to person. In this graphic, we show the range of expected retirement spending.

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Retirement Spending

Americans’ Expected Annual Retirement Spending

Planning for retirement can be a daunting task. How much money will you need? What will your retirement spending look like?

It varies from person to person, based on factors like your health, outstanding expenses, and desired lifestyle. One helpful trick is to break it down into how much you estimate you’ll spend each year.

In this graphic from Personal Capital, we show the expected annual retirement spending of Americans. It’s the last in a three-part series that explores Americans’ spending and savings.

The Range of Retirement Spending

To determine how much people expect to spend, we used anonymized data from users of Personal Capital’s retirement planning tool. It’s worth noting that these users are proactive regarding financial planning. They also have a median net worth of $829,000 compared to the $122,000 median net worth of the U.S. population overall.

Here is the range of expected annual retirement spending.

Expected Annual Retirement SpendingPercent of People
$10K1.3%
$20K3.3%
$30K7.5%
$40K9.8%
$50K5.2%
$60K12.7%
$70K10.2%
$80K6.4%
$90K9.1%
$100K5.4%
$110K1.5%
$120K9.7%
$130K1.5%
$140K2.8%
$150K2.2%
$160K0.9%
$170K0.4%
$180K2.7%
$190K0.7%
$200K0.8%
$210K0.5%
$220K0.2%
$230K0.1%
$240K1.6%
$250K0.3%
$260K0.2%
$270K0.1%
$280K0.1%
$290K0.1%
$300K0.7%
Over $300K2.1%

Users are a mix of single individuals and people in a relationship. In all cases, expected retirement spending is what the household expects to spend annually.

The most commonly-cited expected spending amount is $60,000. Interestingly, this is roughly in line with what Americans spend annually on their credit cards. This suggests that people may be using their current bills to help gauge their future retirement spending.

Median spending, or the middle value when spending is ordered from lowest to highest, falls at $70,000. However, average spending is a fair amount higher at $100,000. This is because the average is calculated by adding up all the expected retirement spending amounts and dividing by the total number of users. Higher expected spending amounts, some in excess of $300,000 per year, skew the average calculation upwards.

Of course, given their higher net worth, it’s perhaps not surprising that many Personal Capital users expect to spend larger amounts in retirement. How does this compare to the general population? According to the Bureau of Labor Statistics, Americans age 65 and older spend about $48,000 per year on average.

Chances of Retirement Success

Once you’ve determined how much you’ll spend in retirement, your next step may be to wonder if your savings are on track. Based on an assessment of Personal Capital retirement planner users, here is the breakdown of people’s chance of success.

Retirement Spending Chance of Success

The good news: more than half of people have an 80% or better chance of meeting their retirement spending goals. This means they have sufficient financial assets and are contributing enough, regularly enough, to meet their expected spending amount. The not so good news: one in five people has a less than 50% chance of meeting their goals.

This problem is even more troublesome in the overall U.S. population. Only 50% of people have a retirement account, and the Center for Retirement Research at Boston College estimates half of today’s workers are unprepared for retirement.

Setting Your Own Retirement Spending Goals

While seeing the goals of others is a starting point, your annual retirement spending will be very specific to you. Not sure where to start?

Financial planners typically recommend that you should plan on needing 70-80% of your pre-retirement income in retirement. This is because people generally no longer have certain expenses, such as commuting or childcare costs, when they retire. However, keep in mind your expenses could be higher if you still have a mortgage, encounter unforeseen medical expenses, or want to splurge on things like travel when you retire.

It requires some upfront planning, but being realistic about your retirement spending can give you confidence in your financial future.

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Navigating Market Volatility: Why ETFs Are Critical Tools

Historically, the trading volume of ETFs has spiked during market volatility. We explore why ETFs are preferred by institutional investors.

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ETFs During Market Volatility

Download the ETF Snapshot for free.

Why ETFs Are Critical Tools During Market Volatility

Investors experienced record-breaking volatility in 2020. During COVID-19 market turbulence, the CBOE Volatility index surpassed the previous peak seen in 2008.

In this infographic from iShares, we explore how ETFs rose in popularity during this time—and the characteristics that make them particularly useful during market volatility. It’s the first in a five-part series covering key insights from the ETF Snapshot, a comprehensive report on how institutional investors manage volatility.

The Methodology

To assess how institutional investors navigated this volatility, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.

For instance, here is how responses broke down by location:

  • 21% Asia Pacific
  • 36% North America
  • 29% Europe, Middle East and Africa
  • 14% Latin America

Here’s what the survey found.

Rebalancing During Market Volatility

In total, 90% of institutional investors said they rebalanced their portfolios between the first and third quarter of 2020. How did they do it?

Among all financial tools, ETFs were the most popular vehicle for rebalancing. For instance, ETFs were used by 70% of investors globally, compared to the 51% who used mutual funds or derivatives.

The popularity of ETFs was evident in market activity. From January to March 2020, ETFs as a proportion of total equity trading volume increased.

 January 2020February 2020March 2020
VIX142058
ETF trading volume$95B$136B$240B
ETF as % of equity volume26%27%36%

Based on an average of daily values. Reflects all listed U.S. ETFs across all asset classes.

This trend is true historically as well, as ETF trading volume has typically spiked during periods of volatility.

Want more institutional insights into ETFs?

Global Forecast 2022

Download The ETF Snapshot for free.

The Attributes Driving ETF Usage

Why are ETFs preferred by institutional investors? They offer three key characteristics:

  1. Liquidity: ETFs make it much simpler to buy and sell large portfolios instantly, instead of trading individual securities.
  2. Transparency: Among multi-asset managers, transparency of holdings is the top reason for using ETFs. A clear holdings breakdown helps these managers achieve exposures to particular asset classes, sectors, and styles.
  3. Efficiency: ETFs can be traded quickly. They typically also have lower transaction costs relative to the underlying basket of securities.

Based on these key benefits, ETFs were an invaluable tool during extreme market volatility.

Growing Momentum

ETFs are also poised to help institutional investors navigate the market going forward. Globally, 65% of institutional investors plan to increase their use of ETFs in the future.

In fact, this is already coming to fruition. As of September 2021, the average daily trading volume of ETFs was up more than 5% compared to 2020.

Evidently, ETFs play a critical part in helping institutional investors achieve their goals.

Download the ETF snapshot for free.

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