iShares MSCI United Kingdom Index: Supersized Stocks For 2008?

Are British bluechips a good bet for your cash in 2008? If relative performance and fund manager sentiment is to be believed, the answer is yes. It's not so much about what UK firms are tipped to do but what UK megacap stocks represent.

Big, defensive, high yield plays is something the FTSE-100 has in spades. There are more than 20 firms valued over $50bn in the index, many of which are among those most preferred by investment managers ahead of what is likely to be a volatile year for the domestic economy and the market. The 100 also outperformed the mid-cap index, the FTSE-250, for the first time in over three years.

But facing facts, 2007 was a hard year for English equities that rose by just 4% over 12 months. Two major corrections, slowing takeovers, economic instability, plus the first run on a bank in over 100 years, have all taken their toll. The market ceased its four year trend and is now oscillating, wildly.

In 2008 I am looking for strong earnings from oil stocks, continued demand and possible consolidation for metals, and for banks to stop the rot. As oil and gas, mining, and banking are the three largest sectors in the market these factors could keep the leaders from lagging. Valuations across the index are strong, as are dividends with an average yield of 3.1%.

The professionals are also cautiously optimistic. Nearly two-thirds of fund managers and three-quarters of financial advisers are bullish according the Association of Investment Companies [AIC].

The credit crunch is not over. Even worse, it is very tough to measure its future effects therefore the FTSE would not be the first index an investor would look to buy.

The current climate is better suited to stock pickers than index holders. That said, and whilst I expect many false starts in the coming year, the UK market does have the infrastructure to finish the year higher. And, with Morgan Stanley et al suggesting capital preservation as opposed to capital growth just a year ago, that might be as good as it gets.