UK value/income bias delivers performance in uncertain times

 [3min read, open as pdf]

• Value bias has made UK equities more attractive recently
• Within UK equities, strategies with an income-bias has outperformed
• “Smart-Beta” means a rules-based approach for constructing an index

 
Value/Income bias for inflation protection
In our 2022 outlook, we explained why inflation will remain hotter for longer and will settle above pre-pandemic levels.  Within equities, we outlined our rationale for being overweight Value-factor equities with an Income bias to shorten equity duration.  This built on our May 2021 view on UK equity income providing a helpful inflation hedge.

The rapidity and severity of market movements against the prospect of faster-than-expected inflation and greater-than-expected interest rate tightening have only served to reinforce these views, as reflected by performance.

Whereas world equities have struggled year to date, UK equities have been a relative bright spot.  Within UK equity index exposures, indices that focus on dividends (with an inherent value bias), over size (market cap) have delivered best results.
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Our Smart-Beta UK Dividend Index [ticker ELSUKI Index] has delivered positive returns YTD ahead of more mainstream UK equity indices, driving the absolute and relative returns of the VT Munro Smart-Beta UK Fund, which is benchmarked to this index[1].

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[1] Note & Commercial Interest Disclosure: Elston Indices is the benchmark administrator for the Freedom Smart-Beta UK Dividend Index, to be renamed the Elston Smart-Beta UK Dividend Index with effect from 1st March 2022.  The VT Munro Smart-Beta UK Fund is benchmarked to this index.