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U.K. Over U.S. Stocks: A Generational Relative Value Play

Aug. 05, 2021 8:15 AM ETSPY, VOO, SPX, EWU, FLGB, FKU, HEWU, ZGBR14 Comments
Stuart Allsopp profile picture
Stuart Allsopp


  • Prior to Covid-19, U.K. stocks offered a considerably higher dividend yield than U.S. stocks, while the long-term growth outlook for dividend growth was only marginal, suggesting strong long-term outperformance.
  • The MSCI U.K. now has an even higher yield relative to the S&P 500, while the growth outlook is much stronger as dividends are set to recover following the Covid crash.
  • Even if the current record valuation divergence remains intact over the next decade, U.K. stocks should outperform by a few percentage points a year.
  • If valuations were to mean revert so that required rates of return in both markets were similar, the U.K. could easily outperform by double digits for a full decade.
Mixed Flags of the USA and the UK. Union Jack flag.Flags of the USA and the UK Divided Diagonally.
MarianVejcik/iStock via Getty Images

U.K. large cap stocks are priced to outperform the U.S. considerably over the coming years after valuations have fallen to new record lows on a relative basis while the growth outlook for U.K. dividends is stronger following the crash seen over the past

This article was written by

Stuart Allsopp profile picture
I am a full-time investor and owner of Icon Economics - a macro research company focussed on providing contrarian investment ideas across FX, Equities, and Fixed Income based on Austrian economic theory. Formerly Head of Financial Markets at Fitch Solutions, I have 15 years of experience investing and analysing Asian and Global markets.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of EWU either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (14)

Veritas1010 profile picture
Yes, was part of that January, 2020 RDS debacle starring Ben Van Beurden at the helm.

Prior to that it was Vodafone PLC.

That however has not stopped my investing in the U.K. as a dividend harvester:


I am full up on BAT, small position in Imperial Brands and a small but growing position in $SSEZY. Only wish I had held onto National Grid ($NGG) when it finally made a move upwards from its permanently lethargic $50’s.

Thank you.
Nortonium profile picture
Nice article, as always. And almost certainly correct. The only fly in the ointment is that between now and the rosy future awaiting the UK indexes lies the mother of all crashes. It won't be the UK's fault; it's fairly valued. Unfortunately, the US markets aren't, and when they pop (later this year), they will drag *everything else* down with them. If Hussman, Dent, Hunter, Pento etc are correct, it's a 70% shave (or MORE) from here, which will drag the FTSE down to about 2000 and change. Calculate your div yield on THAT sucker. So right now, I'm out.
Stuart Allsopp profile picture
@Nortonium I agree but I have a long-short strategy so im long
Nortonium profile picture
@Stuart Allsopp How do you hedge that position? If the 'boys' are right, (and Micael Oliver is wrong) about how the crash starts, it will plummet multiple percent faster than anyone would believe. Hussman thinks "30% down almost vertically won't even raise a sweat". He's hedged with options, BTW. Gawd knows how he makes a profit, given the cost of those options.
Stuart Allsopp profile picture
@Nortonium Well he hasn't, at least not until the past 18 months. I am short various US indices through a spreadbetting account on IG which seeks to hedge my long positions.
What is the best ETF to capture this?
Stuart Allsopp profile picture
@User 21106 Not entirely sure but EWU is decent
Philip MacKellar profile picture
Hi @User 21106, a great ETF resource I like to use is etfdb.com. Here is a link to their UK ETF list etfdb.com/... Hope that helps if you don't already use that resource.
Philip MacKellar profile picture
Thanks @Stuart Allsopp, I recently started to follow you and really enjoy your international focus and articles like this.
Stuart Allsopp profile picture
@Philip MacKellar appreciate your feedback Philip. Thanks for the follow and good luck with your investing. What are you looking at currently?
Philip MacKellar profile picture
@Stuart Allsopp I like looking at undervalued international companies and markets in general which is why I appreciate your work. UK is interesting for sure. The international value focused plays I've wrote here on Seeking Alpha or elsewhere include Turkey (TUR), Greece (GREK), and (AEG).
TheEnterprisingInvestor profile picture
I don't find it so useful to compare businesses based on where they are listed.

The FTSE100 in the UK can be used as a "UK benchmark" but the truth is a lot of those are global companies making revenue around the World. The index is also heavy in financials and energy. Nothing compared to the quality found in the S&P500 from the likes of big tech, etc.

There are some great UK listed companies - e.g. Diageo. However, these are much more "expensive" than the FTSE100 (and rightly so, they are high quality companies).
UK valuations do look better. I can imagine 5 years from now after the big correction arrives people will explain their decisions like this: 'I just thought a 2.5 Trillion dollar corporation could keep growing at 20%. Everyone else thought that as well.'
Stuart Allsopp profile picture
@nothing_lasts haha yea. Well put!
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