By Indrani De, head of global investment research, and Christine Haggerty, research & analytics
Long the underdog of global equities, the UK is enjoying a moment in the sun this year, delivering solid gains when most other markets have fallen into the red.
The broad UK market has been a major laggard for most of the years following the 2016 Brexit referendum. But in a stunning reversal, the FTSE UK has risen 3.6% so far this year, nearly 15 percentage points ahead of the FTSE All World ex UK and even more so relative to the broad US market, which in April suffered its worst monthly loss since pandemic crash in March 2020.
The FTSE 100, the UK blue-chip benchmark, led the way. The index has climbed 3.7% YTD, far outperforming its smaller-cap, more domestically oriented peer, the FTSE 250, which is down 11%.
Global equity returns (%) – as of April 30, 2022
Source: FTSE Russell. Data as of April 30, 2022. Past performance is no guarantee to future results. Please see the end for important disclosures.
As the graphic below shows, the UK has also seized the leadership spot for the 12-month period in relative terms – overtaking the Russell 1000, which is now underperforming the FTSE All-World ex US index for the longer time span.
Regional index returns relative to FTSE All-World ex home market (TR, LC, rebased)
Source: FTSE Russell. Data through April 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Commodity boom, rush into defensives the prime drivers
The UK has been a relative beneficiary of the growth-to-value rotation powered by a global rate-hiking cycle and soaring prices of energy, metals and other commodities. The FTSE UK has outsized weightings in this year’s hottest sectors: energy, basic materials and consumer staples. These three groups make up nearly 40% of the FTSE All Share, versus almost 15% for the non-UK index.
Moreover, the UK market has no equivalents to rival the tech behemoths that dominate the US and Asia Pacific (with respective weights of 28% and 24%), and thus has escaped the collapse in pricier high-growth stocks tarnished by expectations of rising interest rates and looming threats to the global recovery.
The FTSE UK has also benefited from the more defensive shift in investor sentiment and flight from risk, which ramped up in April. In particular, the index has a much larger exposure than its overseas peers to consumer staples companies, which have been able to dramatically raise product prices to offset input-cost inflation and are favored for their less cyclically sensitive earnings profiles.
Industry weights (%) – FTSE UK vs FTSE All-World ex UK
Source: FTSE Russell. Based on Industry Classification Benchmark (ICB) data as of April 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Parsing this year’s sector performances more closely, the UK market’s compositional advantages in the current climate become even clearer: contributions from oil & gas, pharmaceuticals, industrial metals and tobacco stocks accounted for the lion’s share of the UK index’s returns, and far outstripped those of their global peers. Avoiding the wreckage in tech software and hardware stocks was an even bigger source of outperformance.
Top and bottom 10 sector-weighted contributions to returns – YTD 2022
Source: FTSE Russell. Based on Industry Classification Benchmark (ICB) data as of April 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
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