SOURCE: Russell Investments

Russell Investments

August 09, 2013 06:00 ET

Improving UK Economic Outlook Not Yet Fully Reflected in UK Equity Market, According to Russell Indexes

SEATTLE, WA--(Marketwired - Aug 9, 2013) - On the heels of new Bank of England governor Mark Carney's recent observation that "there are clear signs that (UK) economic activity has strengthened this year," Russell Index returns reflect an equity market that has still underperformed the rest of developed Europe.

The UK country constituent within the Russell Developed Europe Index has returned 1.3% for August month-to-date, 10.3% for 2013 year-to-date and 13.0% for one year ended August 6. This compares to a 1.5%, 11.8% and 18.8% for the Russell Developed Europe Index for the same time periods, respectively.

UK equity market performance has benefitted in 2013 from strong retail & consumer stocks, with the top year-to-date performers from the Consumer Discretionary (Thomas Cook Group PLC up 288.0% YTD as of August 6) and Consumer Staples (Ocado Group up 215.2% YTD as of August 6) sectors. Global mining companies have negatively impacted UK equity market performance this year, with Petropavlovsk PLC (-78.6%) and African Barrick Gold PLC (-74.9%) the bottom performing UK constituents year-to-date as of August 6.

And on the basis of 1-year forward weighted average P/E (price to earnings) multiples, the UK country constituent still looks relatively undervalued relative to the Russell Developed Europe Index, with a 14.2 P/E as of June 28, 2013 relative to a 15.0 P/E for the Index.

Russell Investments UK Market Outlook:

"While we are generally positive about the direction of the UK economy, it is important to remember that the UK equity market is dependent on companies with a large amount of foreign earnings, which has impacted its overall performance relative to the rest of developed Europe," said Wouter Sturkenboom, investment strategist for Russell Investments Europe. "This 'push and pull' scenario at work in the UK market is illustrated in the strong performance of the UK-driven retail sectors and the performance challenges faced by the more international and emerging-markets driven mining companies. However, the forward price-to-earnings multiples for the UK equity market relative to the rest of developed Europe indicate a neutral to slightly attractively valued market."

Russell Index Returns
Index / Index Sector     August MTD
as of Aug 6
    2013 YTD
as of Aug 6
    1 Year
as of Aug 6
Russell Developed Europe Index     1.5%     11.8%     18.8%
Russell Developed Europe Index - UK     1.3%     10.3%     13.0%
Russell Developed Europe Index - Austria     2.6%     2.6%     24.4%
Russell Developed Europe Index - Switzerland     2.6%     16.6%     23.5%
Russell Developed Europe Index - Germany     0.8%     10.6%     22.5%
Russell Developed Europe Index - Spain     1.9%     7.1%     31.6%
Russell Developed Europe Index - Finland     2.3%     12.0%     27.6%
Russell Developed Europe Index - France     1.9%     14.9%     25.4%
Russell Developed Europe Index - Ireland     1.8%     22.6%     27.0%
Russell Developed Europe Index - Italy     2.5%     5.6%     23.4%
Russell Developed Europe index - Luxembourg     -0.9%     -4.2%     -0.7%
Russell Developed Europe Index - Netherlands     -0.5%     9.1%     9.8%
Russell Developed Europe Index - Norway     -0.6%     5.1%     8.5%
Russell Developed Europe Index - Portugal     -0.9%     8.4%     32.7%
Russell Developed Europe Index - Sweden     -0.3%     15.5%     16.5%

Source: Russell Investments & Factset. Returns are denominated in euros.

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index. 

Opinions expressed by Mr. Sturkenboom reflect market performance and observations as of August 6, 2013 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

This material is not an offer, solicitation or recommendation to purchase any security.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.