Mark Barnett: Flying the flag for the London Stock Exchange


Fashions for different investment sectors will come and go but the London Stock Exchange has stood the test of time, having been in existence for some 300 years. This is testament to the UK’s pioneering spirit, its capacity for innovation and invention, and its academic tradition of nurturing intellectual capital.

While it is true some UK-listed companies, such as those in the utilities sector, do sell primarily to the UK consumer, around 75 per cent of UK companies’ revenue is generated from overseas. I  value the liquidity, breadth and regulatory framework of the UK stock market. Here are four more reasons to flay the flag for the London Stock Exchange:

1. Diversification: A growing global reach

It is a misconception that the success of the UK market is directly correlated to the success of the UK economy. Indeed, as already highlighted, around two thirds of listed UK company revenues are derived from overseas. As such, a carefully selected portfolio of UK equities can provide investors with significant international exposure. Moreover, given entrepreneurial Britain’s propensity to innovate, its rich intellectual property heritage and the advances in global communications and trade in the online world, the proportion of UK companies’ overseas derived earnings can be expected to grow over time.

Indeed, for many of the larger London listed companies, their exposure to the UK economy is only a tiny portion of their total revenue. With this in mind, the outcome of UK domestic policies is likely to have very little, if any, impact on the long-term success of such businesses.

2. Access to innovation and world-class brands

The UK boasts a rich scientific and technological heritage. This alongside the creative ingenuity and innovation of its intellectual capital have provided the ingredients for today’s thriving UK stock market universe.

3. A distinctive history: One of the oldest and best regulated markets in the world

The London Stock Exchange is one of the world’s oldest, tracing its history back more than 300 years. Over the centuries, it has become a strong, well-regulated market operating under the British legal system. Today it lies at the heart of the global financial community. Investing in companies listed on the London Stock Exchange means investing in companies that have already met certain due diligence requirements to have earned and maintained their listing. Such a set up lends itself to high standards of corporate governance.

4. A dividend paying corporate culture and respect for the rule of law

As far back as the mid-19th century, UK companies have recognised the importance of regular dividend payments to shareholders. Indeed, access to UK companies’ dividends are highly sought after, with UK equity income funds continuing to lead the way in various best-selling lists.

Given the complexities of some of the financial products on offer today, let alone the sheer numbers of funds to consider, one could argue that sorting the wheat from the chaff is akin to a full-time job. While some might argue that the more bells and whistles a fund has the better, I take the opposite view: keep things simple, invest for the long-term, be prepared for some ups and downs along the way and take full advantage of the UK’s low-hanging listed fruit.

While the UK equity market as a whole may have become more richly valued in recent years, I see it as being currently around fair value and not massively out of kilter with the valuations of European and North American equity markets.

Mark Barnett is head of UK equities and portfolio manager at Invesco Perpetual.