Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Richard Colwell. He is manager of the Threadneedle UK Equity Income fund. Hello.
Richard Colwell: Hello, there.
Black: So, Richard, we sit here at the end of one year and the start of the next. Can you tell me what is it like to be a UK equity income investor in 2020?
Colwell: Well, it's been very lively, very exciting. Those of us who were investing through the financial crisis a decade ago thought that was the boneshaker to end all boneshakers. But it turns out that was just a warmup act really. So, yeah, hell of a thing for everybody's process and you learn a lot about yourself and your team in terms of how we've coped with the pressures and trying to assimilate huge uncertainties in terms of how you approach valuation of companies.
Black: So, I can understand investors might not want to make predictions for the year ahead, being as 2020 had so many surprises. But looking to 2021, which areas are you feeling most positive about? Where do you think the opportunities are?
Colwell: Gosh, well, I mean, at the risk of sounding like a broken record, actually, a lot of what we were saying this time last year I would still hold as truth. We are already seeing evidence of overseas corporates and private equity sniffing around great franchises that are available at very attractive valuations because of this kind of double discounts that the UK equities sits on because of Brexit over the recent four years or so and now Covid. And therefore, in some ways it's frustrating but it's also exciting. But I don't think we need to worry about really the magnitude of the economic recovery, the nuances of what a post-Brexit world looks like. We're just cheap pound for pound every sector relative to its peer group overseas. And therefore, I don't think the value opportunity is in a relatively narrow set, I think it is across the wider UK markets.
Black: So, lots to be positive about, but what are the challenges? Where are you more cautious for the year ahead?
Colwell: Well, you're always looking for shadows. Unfortunately, didn't see the one that was staring us in the face this time last year. But I suppose it's that – there is a degree of euphoria. There is the old don't go against the Fed sort of the notion that policymakers have got our backs, and well, arguably, we might look back and say they made mistakes and overvalued things. So, it's always right to be wary. If it's too good to be true, it usually is. So, that's why I think UK equities is a good place really in the sense that we don't have that euphoria, we don't really have lots of valuation overstretched that arguably you could see in other markets. I mean, in the great balloon debate regardless of your politics UK is at a 20-year low against Europe. I mean, that's just mad.
Black: Richard, thank you so much for your time. For Morningstar, I'm Holly Black.
