Gervais Williams, Co-Fund Manager of Diverse Income Trust plc (LON:DIVI) caught up with DirectorsTalk for a quick-fire discussion on the US economy, turbulence in the UK financial market & how the FTSE responded, and the key to finding good value in the UK market.
In the full video interview, Gervais delves into the recent good performances and outlook for eight FTSE-listed stocks.
Q1: Gervais, with President Trump sworn in this week, what can we expect for the US economy and investors?
A1. It’s interesting. Basically, the UK economy has been somewhat flat, the European economy hasn’t done much, the Chinese economy has been slow, but the US economy has been relatively strong. That’s actually led to a very good performance in the US market.
With President Trump coming into power, we’re going to see a radical change in economic and political policies going forward. He’s talking about issuing 100 executive orders as a start for ten and then all sorts of uncertainties about how other countries will react, whether there will be retaliation, whether there’s going to be opportunities for them to do better deals with them.
The net effect is, I think we’re looking at a period of substantial change, and whilst that’s going to be unsettling for everyone, I think specifically, this gives an opportunity for companies to generate surplus cash to have the advantage.
So, I think the US economy will probably do just fine. I think the US stock market will probably be OK, but I’m expecting the UK economy to be not very exciting. I think the UK stock market is going to really start outperforming quite considerably, already year to date, it’s already had a good start.
Q2: We’ve seen a lot of turbulence in the UK financial market since the start of the year. What’s been happening there and how has the FTSE responded?
A2: What we’ve really seen is actually the FTSE 100 has actually risen quite nicely; it’s breaking out on the upside. We’ve been looking forward to that, those who’ve heard me before have been expecting that to happen.
As that happens, what we see is probably international investors begin to start becoming more interested, not just because the FTSE is outperforming, but because it’s actually got a different make-up. It’s made up of a lot of relatively capital-intensive businesses, companies where inflation is a long-term problem or if interest rates remain higher than expected for longer, then these companies have a particular advantage in that it’s difficult for people to build assets which compete with them.
So, we’re expecting the FTSE 100 specifically to outperform. We think it’s actually just starting, we think it’s going to be a long-term feature of five, ten-plus years, and specifically, we think small companies will also have a catch-up trade along the way.
Q3: What do you think is the key to stock pickers finding good value in the UK market in 2025 and beyond?
A3. Well, a lot of companies in the UK are actually undervalued. There’s been quite a lot of OEICS selling over recent years and that’s really held back the returns of mainstream companies. FTSE has still done pretty well because actually they’ve been buying back their shares. Smaller quoted companies, which actually haven’t often been buying back their shares, are less well positioned, their share prices have been quite weak, they very much underperform. The AIM market specifically has actually held back.
If you go back to June ‘21 and through to about now, then you’ve seen the FTSE 100 with its buybacks and its dividend paying has moved up 35/40%, meanwhile, actually, the AIM market is down almost 40%.
UK quoted companies are all pretty cheap, including big companies, but smaller quoted companies, I think, are amazingly overlooked. Specifically, many of those which are well positioned not just to survive, but thrive as they generate surplus cash, we think would have a long period of outperformance from here.
Please find the full exclusive interview with Gervais Williams here where we delve into the recent good performances and outlook for eight FTSE-listed stocks.
Diverse Income Trust plc invests primarily in quoted or traded UK companies with a wide range of market capitalisations, but a long-term bias toward small and medium sized companies.
