YWR: The UK Dogs Fund
‘Detroit on the Thames’
‘Last one out turn off the lights’
That was the theme of the night’s discussion.
It was an ideas dinner at a posh hotel in Mayfair.
Several HWNI and Family Office advisors were gathered around a table expressing how bad the UK has become and how they are spending more and more of their time in Dubai or Abu Dhabi.
The conversations and energy are just better in Dubai.
Everyone is moving there.
It’s buzzing!
The background to ‘everyone is moving there’ is that the UK is now taxing people on their offshore income if they live in the UK. Sounds sensible but there were a lot of wealthy individuals living in the UK, but saying their business was offshore and so not paying tax. Then that rule changed, so they upped sticks and moved on to the next tax shelter, Dubai.
So first it was Brexit, then it was the non-domicile tax change.
The conclusion of these investors was that ‘The UK government doesn’t do anything right’
The UK was dead.
Last man out turn off the lights.
This group was actually having a profound investment conversation.
Better than anything in Dubai.
They just didn’t realise it.
The set up for Reform
The investors at the dinner were right about one thing. Everyone is fed up with UK politicians. Fed up with the Tories who screwed up a great opportunity, and now fed up with Labor who is hitting record levels of unpopularity. Only 14% of the population approves of what the government is doing. This used to run at 30% from 2011-2015.
Approval ratings this low are because both of the two leading parties botched it respectively. Which is what sets up the opportunity for a third party to give it a try.
Things are so bad UK voters want to try something new.
UK voters wants a government tough on illegal immigration, tougher on crime and more pro-business.
Sound familiar?
It’s the Trump platform. It’s the cry of the common man.
And the UK has their own version of Trump, Nigel Farage, who is already leading the popularity polls.
Do you see the trade?
Let me add a few more dots. Then it might be clearer.
In the BofA survey fund managers love EM, love Europe, and are neutral the US and Japan, But the thing everyone agrees on is their negativity toward the UK. The UK is the most underweighted country allocation in the developed markets.
Valuation-wise, the UK is the only market trading below 15x, and still at its historical average P/E. Every other market is trading rich to its own history.
Do you see the set up? Now is it clearer.
We have the most hated market in the world.
The most undervalued market in the world.
A market left for dead by it’s own people, which is three years out from getting their own version of Trump.
Do you see how much this could rip?
How we make money from the Reform Revolution
With Reform the UK booms.
The UK goes from hated to the new hot trend everyone will want to buy.
But we have to understand their policies and find the themes with the most torque.
Key themes:
Drill Baby Drill: UK North Sea energy companies have been crushed by the Labor party energy transition policy. There is a moratorium on issuing drilling permits for new projects in the North Sea. This flips 180 degrees with Reform.
“As long as there’s oil in the North Sea, we should be drilling for it,” a spokesperson for Reform UK said. “There are clear benefits for securing jobs and energy independence.”
We should be looking at beaten up UK North Sea energy companies like Ithaca Energy, Enquest Energy, Serica Energy.
Save our Pubs: A highlight Reform policy is to reduce taxes on beer and pubs. Pubs are seen as a UK cultural institution and need to be supported. Which is true.
Reform’s 5 point plan for pubs:
Reduce VAT to 10% for the hospitality sector
Scrap the employer National Insurance increase for hospitality businesses
Cut beer duty by 10%
Implement staggered business rate abolition for all pubs
Change regulation (the ‘beer orders’) to support landlords
So we start doing work on beaten up UK pub stocks like J D Wetherspoons, Mitchells and Butler, Fuller Smith and Turner, and maybe even Fevertree Drinks.
Affordable Homes: Homebuilders are another UK domestic sector in the total dumps. Changing the system for building permission has been a long and thorny process. Homebuilding isn’t a key Reform policy, but it has been under the current Labor party and they’ve been doing a lot of work on this.
Ironically, a pick up in home starts might coincide with the Reform party leadership, even though the hard work was done previously by Labor. We should do work on Travis Perkins, Persimmon, Taylor Wimpey, Berekeley Group, Foxtons.
Make UK Cool Again: Let’s expand our imagination of how this could play out. UK culture might also have a resurgence. The UK will be cool again. So let’s consider the upside for UK brands like Burberry, Mulberry Group, Doc Martins and Aston Martin.
Tourism: Maybe UK tourism and business travel pick up. I’m not sure how to play this, but the airlines could be one angle. IAG (British Airways), Easyjet,
UK Biotech: The UK has some of the best universities in the world and there is a small biotech cluster developing. Maybe this starts to get some attendtion. Stocks to note are Oxford Nanopore, Oxford BioMedica, and Life Science REIT.
Make London City Great Again: The FT is always goes on and on about the decline of London as a global financial center.. but it’s still THE international finance hub outside of New York. London has the capital markets, and also the insurance markets which nobody thinks about. England and Wales is also the legal structure every issuer picks around the world.
London is the crossroads where everyone from the Middle East, Africa, Europe and Asia can come to have board meetings and get deals done. And maybe if there is increasing resentment towards the US, London becomes the more accepted alternative.
Let’s start to consider a brighter future for stocks like LSEG, Schroders (Untouchable #9), British Land, Shaftsbury Capital, and Land Securities if London gets its mojo back.
The UK Dog Screen
These are just some of the ideas which come to mind. There so many angles to the UK trade when you start to think about it. And it’s just sitting there. Like untouched pow.
But I want to hear what you think too.
To get us started I’ve created a screen of over 500 UK stocks with the sector classification, market cap, 5 year price change, sales, price to sales, ROE, FY1 and FY2 estimated P/E (where there are earnings estimates).
Let’s get down into all the dirty, unloved UK small caps that nobody cares about.
And like any good YWR theme it needs a catchy name.
‘UK Dogs’ might describe what we are doing well.
The link to our UK dogs screen is below.
