Faced with geopolitical uncertainty, rapidly evolving technology and an increasingly polarised stock market, lead portfolio manager Simon Gergel for UK-based The Merchants Trust debates the outlook for UK-listed companies.

The UK is still performing well, despite a difficult economic backdrop, according to Simon Gergel, lead portfolio manager for The Merchants Trust.

The trust, which delivers a 4.5 per cent yield, aims to exceed level of income and income growth as well as long-term capital growth, through a policy of investing mainly in higher yielding UK large cap companies. It has delivered 44 consecutive years of dividend growth, prioritising income resilience, value, and long-term returns.

Sectors include metals and mining, followed by banks, oil and gas, non-life insurance and telecoms, while top holdings include Lloyds Banking, Shell, Reckitt Banckiser, Rio Tinto, Barclays, BP, Hikma Pharmaceuticals, Harbour Energy, Whitbread, the Sage Group and Legal and General.

On UK-headquartered software company Sage, he said it has a strong growth record, high margin and returns. He recently sold Tate & Lyle, Unilever, Close Brothers and bought Bloomsbury Publishing, Dutch software company Wolters Kluwers, the Sage Group and Hikma Pharmaceuticals. London-listed Hikma Pharmaceuticals structural themes include an increasing spend on healthcare in developing countries, Gergel said.

Despite market challenges, Gergel emphasised that the UK remains attractive, citing that the stock market is one of the cheapest markets and that there are opportunities surrounding small and medium-sized firms.  Also, the UK economy does not have a bad outlook compared with other the G7 countries, he added. 

Gergel's stance is shared by others. Matthew Spencer, head of UK retail at Orbis Investments, for instance, also finds a lot of investment opportunities on the undervalued UK market.

Spencer has increased his exposure to the UK market recently. He added Experian, a UK-headquartered data and tech company. Another area is construction with investments in Balfour Beatty, the UK’s largest construction and infrastructure provider. Spencer is also still invested in Rolls Royce. He has been invested in defence for example BAE Systems but trimmed that recently.

In line with Merchants Trust, he has also added to oil companies such as UK-listed energy firm Shell. “We are supportive of the move towards green energy but firms are still expensive and fossil fuels are still needed. We think natural gas is a good transition, and Shell has clearly tapped into that,” Spencer said.