JPM UK Equity Core UCITS ETF (JUKE) offers low cost, low active risk exposure to a historically cheap, globally diversified stock market that could be on the cusp of a potential rerating.
A supportive backdrop for the UK stock market
Since its launch in June 2022, JUKE has offered exposure to an extraordinary valuation opportunity in the UK market, with UK equities trading at significant discounts versus their own history and relative to their international peers. While this valuation opportunity in the UK market remains in place, as JUKE celebrates its second birthday we may now, encouragingly, be starting to see market participants take advantage, as evidenced by rising share buyback and merger & acquisition activity.
Chief executive officers (CEOs) of UK companies are buying back their own stocks at an increasing rate versus peers in other equity markets, demonstrating the belief they have in the investment case for their own companies. These buybacks are helping to return significant value to shareholders. When the net buyback yield is combined with the dividend yield, the UK market’s total yield is currently one of its most attractive features compared to other markets around the world.
UK CEOs are not alone in taking advantage of these historically wide valuation discounts in the UK market. A pronounced increase in mergers and acquisitions activity, and private equity buyouts, since the turn of the year highlights the potential that private markets see in UK companies.
At the same time, previous episodes of UK outperformance against other developed market peers have notably occurred following a period of stretched valuations within specific sectors, and after a corresponding period of geopolitical uncertainty and interest rate volatility. All of which may sound familiar to investors today.
Catalysts for a UK market re-rating
While the conversations around the valuation opportunity in the UK market and the UK market’s previous outperformance are not new, we believe that there are now two key catalysts that could contribute to a rerating in the market.
First, the UK economy is showing signs that it may be turning a corner, and this newfound economic optimism could become a factor in a potential rerating within the UK equity market. Market sentiment has improved after UK first-quarter GDP beat expectations and headline inflation fell below corresponding inflation figures in the US and eurozone in April, prompting language from the Bank of England that suggests an interest rate cut may follow over the summer.
The improving economic backdrop is feeding through to improving corporate sentiment. In April this year the headline S&P Global Flash UK Purchasing Managers’ Index (PMI) Composite Output Index witnessed the fastest pace of expansion since May 2023, rising to 54.0 from 52.9 in March. At the same time, the UK private sector expanded for the sixth month in a row with an increase in new business orders and export sales.
The second potential positive tailwind for the UK is market reform. One of the largest issues the UK market has faced in recent years has been the combination of price insensitive selling and significant fund outflows, which have inevitably led to sustained price depreciation. To counter these pressures, over the last year we have seen increasing discussion on equity market reform, including the increasing exposure of UK pension funds to UK equity markets and the introduction of a UK individual savings account (ISA) to increase retail investor appetite.
It seems increasingly likely, given the noises made by both the current government and the opposition, that market reform could be on the cards whatever the outcome of the general election. Any such reform should have a positive impact on the equity market and has the potential to drive a rerating in valuation to close the gap between the UK equity market and its developed market peers.
Benefits of investing in the UK with the JPM UK Equity Core UCITS ETF
JUKE provides investors with a cost effective and highly efficient way to allocate to the UK market. This actively managed UK equity ETF, with over £200 million in assets under management, has been designed to build upon the success of the JPM UK Equity Core Fund, a long established OEIC that currently sits in the top quartile relative to its peers over one, three, five and 10 year periods1. The strategy’s management team – James Illsley, Callum Abbot, Richard Morillot and Chris Llewelyn – have an average of over 24 years’ industry experience and are part of a wider team of specialist investors with significant experience investing in the UK market.
JUKE is available for an ongoing charge of just 25 basis points. While investors should also take account of other costs of owning an ETF, including the cost of buying and exiting the fund, JUKE provides access to a compelling valuation opportunity in the UK market, backed by a team of dedicated UK equity managers with a long and successful track record.