2020 was a year of uncertainty everywhere and none more so than for the UK. It combined unresolved Brexit negotiations with a horrific COVID-19 performance, both with respect to personal health and economic activity. In times of uncertainty, investors flock to the safest rather than the cheapest earnings and 2020 was no exception. Value had a torrid year, with cheap shares performing worse than expensive shares, be they perceived quality or growth.

Companies that are likely to continue to grow are those that can take market share and expand margins…likely to be easiest where the competition has been impaired in 2020

As we start 2021, the Brexit deal has removed the most severe downside risks and any certainty of recovery from COVID-19 has been increasingly established. The UK stands at a valuation discount to the rest of the world and, within the Fund, domestic earners stand at more than a 20% discount to overseas earners. Clarity on the medium to longer-term earnings should allow valuation fundamentals to re-assert themselves as they started to in Q4 2020. A key driver is likely to be asset allocation back towards the UK given the near-record UK underweight is no longer warranted. In addition, we anticipate that M&A which has had a noticeable pickup in recent months is likely to continue while this valuation discount is on offer.

Growth in 2021 is likely to be from the hardest hit sectors of 2020. As we look into 2022 and beyond, companies that are likely to continue to grow are those that can take market share and expand margins, and this is going to be easiest where the competition has been impaired in 2020. As the UK picks itself up off the floor, there are plenty of opportunities in well-priced shares whose long-term growth is underestimated.