Buying British: Dividends, Defence and Diversification

Hello everyone and thank you for joining us for this special webinar. My name is Victoria Scholar, Head of Investment at interactive investor, and I’ll be hosting today’s discussion.

Today’s topic is “Buying British: dividends, defence and diversification.” We’ll be getting expert perspectives on the outlook for investment opportunities in the UK.

We’re aiming to run for about 40 minutes. First, we’ll introduce our guests, then move into a panel discussion before finishing with questions from the audience.

Before we begin, a couple of housekeeping points. This webinar is for educational purposes only and does not constitute financial advice.

We’d also love to hear from you. We’ve already received some excellent questions that helped shape today’s discussion, so thank you for sending those in. If you haven’t submitted a question yet, you can head to Slido using the event code 1857610. The code is also available below the YouTube video and via the QR code on screen. Popular questions will be prioritised, so if you see a question you like, give it a thumbs up.

If Slido feels too complicated, you can also post your questions directly in the YouTube comments and we’ll try to cover those as well.

Before we introduce our guests, we’re running a quick poll asking: how much of your portfolio is held in UK stocks?
Is it up to 25%, between 25% and 50%, between 50% and 75%, or over 75%? The poll is open now and we’ll reveal the results at the end.

Now, let’s introduce our panel.

Joining us today is Jasmine Yeo, co-manager of the Ruffer Investment Company, a wealth preservation investment trust. Jasmine joined Ruffer in 2017 after graduating from Warwick. She began on the private client team before becoming an investment specialist and later a fund manager.

We’re also joined by James Harries, fund manager of the STS Global Income and Growth Trust. James runs a global portfolio but currently has a notable allocation to the UK, with roughly a third of the portfolio invested in UK equities. That’s significantly higher than the UK’s roughly 3% weighting in global stock markets.

There’s plenty to discuss, so Jasmine, I’ll start with you. Could you outline your investment case for UK equities compared with global markets?

Jasmine Yeo: From a backward-looking perspective, the UK has been a difficult place to invest for several years. Political uncertainty since Brexit and the market’s sector composition, with relatively little exposure to technology compared with the US, have contributed to that.

As a result, UK equities have traded at a significant discount relative to both their own history and global markets.

Last year we saw a revival in the UK market, and the key question for investors now is whether that was just a temporary bounce or the beginning of something more sustained.

Our view is that the UK remains an attractive market. Even after last year’s performance, valuations still look appealing relative to other markets, particularly the US, where valuations are roughly 30–40% higher.

Sentiment also remains subdued and investors are still underweight UK equities, both among retail and institutional investors. When we look at valuation, sentiment and positioning together, the UK scores quite well.

What that means is the UK doesn’t necessarily need exceptional economic growth to perform well. It simply needs to be less overlooked by investors, which could drive meaningful upside.

Victoria Scholar: We saw strong UK market performance last year, which boosted interest in UK equities. But a lot has changed since then. For example, tensions in the Middle East have pushed oil prices above $100, raising concerns about inflation and global growth.

We’ve also seen different sectors respond differently — travel and airlines have struggled while defence and oil companies have performed well.

James, how do developments in the Middle East affect your outlook for the UK?

James Harries: The UK looks attractive not only on its own merits but also compared with other markets, particularly the US.

The US has been an extraordinary market for a long time, but it is now highly concentrated, highly correlated and very expensive. Much of that is due to the dominance of large technology companies and the enormous capital expenditure on artificial intelligence.

That spending has been driving economic activity, stock market performance and consumption through the wealth effect. If that dynamic begins to reverse, the US could face a more difficult environment across equities, debt markets and the currency.

By comparison, the UK looks relatively insulated. In the short term, the UK also benefits from its exposure to sectors such as energy and defence, which have been performing well.

Over the longer term, however, the effect of oil shocks can be complex. In the short term, they tend to be inflationary because energy prices rise. Over time, they can actually suppress demand and become more recessionary.

Following last year’s strong performance in sectors like mining, oil and banks, those areas have already rerated quite significantly. Meanwhile, more predictable and less cyclical businesses now look relatively attractive from a valuation perspective.

Victoria Scholar: That strong performance last year contrasts with the broader economic picture in the UK, which remains challenging. We’ve seen a GDP downgrade in the spring statement and renewed concerns about inflation.

How do you reconcile strong market performance with relatively weak economic fundamentals?

Jasmine Yeo: Some of the macro data actually looks more supportive than many investors expect.

Retail sales have been relatively strong and PMI indicators have also been encouraging. Economic surprise indices are improving, and although job growth has been weaker, there are signs of stabilisation.

We’ve also seen a disinflationary trend in the UK over the past couple of years, which means the door is still open for interest rate cuts.

Another point that doesn’t get much attention is the difference between the public and private sectors. The public sector faces significant debt constraints, but the private sector — households and corporates — is actually in relatively good shape.

Compared with the period around the global financial crisis, the private sector has significantly reduced leverage. That means there is capacity for borrowing to increase again, potentially creating a credit impulse that supports economic growth.

If interest rates begin to fall, that could be a meaningful catalyst for the UK economy.

Victoria Scholar: Given that environment, dividend stocks can become particularly attractive. James, your portfolio includes companies such as British American Tobacco, Rentokil and IG Group. Could you highlight a few of your highest-conviction dividend ideas?

James Harries: At Troy Asset Management we prioritise defensive, predictable businesses with low volatility and strong income characteristics.

The UK is fertile ground for these types of companies, particularly when they are trading at a discount to global peers.

One example is British American Tobacco. While some investors have ethical concerns, the business is increasingly focused on nicotine products rather than traditional tobacco. Its shares have rerated somewhat but still look attractive relative to global peers.

Another interesting company is Rentokil, a pest control business. It may not be glamorous, but it is a highly predictable global business. Demand for pest control grows as living standards rise, and it’s not easily disrupted by technology.

Finally, IG Group is a dominant platform in the UK spread betting market. Its scale allows it to offer tight spreads, giving it a competitive advantage. With new management and improving growth prospects, it looks undervalued compared with similar US platform businesses.

Victoria Scholar: Jasmine, where do you see sector opportunities in the UK right now?

Jasmine Yeo: This year has been characterised by significant volatility at the sector level.

One example is the recent sell-off in software and data companies due to concerns about artificial intelligence disrupting their business models. Companies such as Sage, Relx and London Stock Exchange Group were hit quite hard.

That has created opportunities. For example, Experian has built a huge database of proprietary credit data over decades. In an AI-driven world, high-quality proprietary data could become even more valuable.

We also see opportunities in UK housebuilders. If interest rates begin to fall, affordability should improve and demand could recover. Many housebuilders have strong balance sheets and are currently trading at attractive valuations.

There’s also political support for increasing housing supply, which could support the sector over the longer term.

Victoria Scholar: We’re now going to move to questions from viewers.

One viewer asks whether it’s possible to achieve annual income of 8–10% from investments.

James Harries: Achieving that level of income usually involves significant risk.

In equities, we believe a yield of around 3% on average — combining higher and lower yielding companies — is a more realistic and sustainable target.

One area that still looks interesting for income is short-dated government bonds, particularly low-coupon gilts. For taxable investors, capital gains can be more tax-efficient than income.

However, investors should be cautious about stretching too far for yield.

Victoria Scholar: Another viewer asks about the outlook for UK banks.

Jasmine Yeo: UK banks had a very strong year, with some stocks doubling in value. They’re not as cheap as they once were, but returns on equity remain attractive.

If interest rates fall and credit growth improves, banks could benefit significantly. Credit standards remain strong and balance sheets are healthy.

Victoria Scholar: We also received a question about home bias in portfolios. Many UK investors hold a large proportion of UK stocks. Is that a good or bad thing?

Jasmine Yeo: It can work both ways.

If you own a global equity index, the UK typically represents only about 3% of the global market, while the US accounts for more than 60%.

So some exposure to UK equities can make sense if valuations are attractive. But investors should still ensure their portfolios are diversified globally and positioned for the future.

The investment environment has changed significantly, and the portfolios that worked between 2010 and 2025 may not perform as well in the decade ahead.

Victoria Scholar: Finally, a question about the UK market itself. We’ve seen companies such as Arm, Wise and Flutter move their listings abroad. Does this weaken London’s position as a global financial centre?

James Harries: The US market is deeper and more liquid, which is why some companies are attracted to listing there.

However, share price performance ultimately depends on a company’s cash flow growth rather than where it is listed.

The UK has become a smaller part of global indices over time, partly because sterling is no longer as dominant as a reserve currency.

But the UK still has significant strengths — including strong legal institutions, a favourable time zone between Asia and the US, and a powerful financial services ecosystem.

For those reasons, there are still plenty of reasons to be optimistic about the UK.

Victoria Scholar: That’s a positive note to end on. Thank you both for a fantastic discussion.

Our poll asked how much of your portfolio is held in UK stocks. The most common answer, with 44%, was up to 25%.

A huge thank you to our panel — Jasmine Yeo and James Harries — and to everyone who joined us today.

You can watch the replay on YouTube if you’d like to revisit the discussion or share it with others. We’d also really appreciate your feedback, which helps us shape future webinars.

Thank you for joining us, and goodbye.