The outperformance of US markets has been one striking feature of the pandemic. That’s directly linked to the eye-watering rises in valuations and revenues of big tech as investors and new customers flocked to these companies when the world was forced to stay at home. It’s just over a year since Apple’s galloping value eclipsed the worth of the whole of the FTSE 100 and it has kept pace since then with the tech stock and the index both now valued at around $2.7tn. But the seeds of this US success were sown long before then.
In contrast, since the Brexit referendum the UK market has been having a rather miserable time of it: underperforming US and EU equities, stalked by predators, full of yesterday’s old-world success stories and largely a tech-free zone. There’s also the unsettling suspicion that it’s all built on a destructive dividend culture, as recently highlighted by hedge fund manager Paul Marshall, which prevents companies from investing in their own future. If the US represents the world’s exciting tech future, it seems the UK has lost its way.
Since 2016 the S&P has delivered gains of 140 per cent, the FTSE 100 less than 40 per cent while the number of listed companies in the UK has fallen by about 40 per cent from its peak in 2008 and London failed to secure more than 5 per cent of IPOs globally between 2015 and 2020.
The contrasting fortunes of the US and UK have rattled UK regulators enough to change the listing rules. It’s hoped the new rules will entice more founder-owners and young tech companies who wish to retain control to London. Now only as little as 10 per cent of shares will need to be offered to the public and the founders can retain more control through dual class share structures.
But generalisations about the US and the UK can blind investors to plenty of exciting opportunities. Being unloved right now means the UK is rich in cheap value opportunities, which is one reason why JPMorgan Chase analysts have changed their view and turned buyers on the UK, writing that the current relative cheapness is a big draw. Meanwhile, management consultant Alvarez & Marsal predicts that 148 companies in Europe are at risk of activist attacks in 2022, with the UK the most attractive target. A&M predicts 21 UK companies will face a public campaign by an activist investor in the next 12 months.
And for all their attractions, the US’s highly valued tech giants are more vulnerable than UK companies to hawkish monetary policy. The merest hint of rising rates and tightening monetary policy caused stocks to slide last week when Fed Reserve chair Jerome Powell indicated he was leaning that way. Any sign that revenue growth is unsustainable will cause unease among investors – look at how pandemic success story Zoom’s (US:ZM) star has faded: it’s down more than 60 per cent from its 2020 peak. And no one’s queueing up to sue Britain’s motley crew over their failures to eliminate harmful online content, or rein them in over market dominance fears. Media buyer GroupM highlighted the extent of some of the Faangs’ grip on markets when it revealed this weekthat, outside of China, Alphabet (US:GOOGL), Meta (US:FB) and Amazon (US:AMZN) between them represent more than 50 per cent of the industry’s total global ad market in 2021, up from closer to 40 per cent in 2019.
Still, the US isn’t just the FAANGs. It offers plenty of unique and highly liquid investment opportunities, which is why we’ve taken a closer look of some of the companies beyond the tech titans in our cover feature this week. We're planning to run more regular content on US shares (while not cutting back on our UK coverage) in the new year. As always it is useful for us to hear your thoughts on this – please do email me at firstname.lastname@example.org.