Why has there been a surge of international interest in buying UK companies? It suggests to me that a lot of smart money sees value in the British economy right now. So when considering where to invest for my portfolio, I am not looking far from home.
If I wanted to put £10,000 to work today in UK shares right now, here’s what I would do.
Spread the funds
A good thing about £10,000 is that it’s enough to broaden one’s exposure. I can reduce my risk through diversifying across different shares and sectors of the stock market. So I would split the money between at least five different companies.
I would also be willing to spend some of the money on shares focussed on growth prospects rather than putting it all into well-known dividend payers.
UK growth shares
There are quite a few promising UK growth shares I would consider for my portfolio when deciding where to invest.
Growth isn’t just found in the places one expects it. I am not surprised to see growth at a software firm like Kainos or digital ad agency such as S4 Capital, both of which I would consider buying. But I am impressed at some of the growth prospects in industries that seem less dynamic. For example, retailer JD Sports has grown revenues and profits by double digits for a number of years. One risk for all growth companies is that fast growth can dilute profit margins.
I would consider buying shares in Judges Scientific. I like the company because I think it has been built around principles similar to Warren Buffett’s investing style.
The holding company owns a collection of well-regarded manufacturers of niche scientific products. That allows manufacturing autonomy while giving benefits such as access to capital for expansion. A recent increase in its banking facility from £35m to £60m adds financial firepower for acquisitions. One risk I see with Judges is maintaining its growth rate. The pandemic showed that product demand is not guaranteed. As universities seek to tighten their belts, that could be a drag on revenue growth.
Where to invest for income
While I’d put some of the £10,000 into growth choices, I would put at least half of it into income shares. That is because UK shares are among my favourite passive income ideas.
For income, I continue to like tobacco shares such as Imperial Brands and British American Tobacco. So I would use some of the money to top up my holdings in one of them. But tobacco continues to carry risks, such as falling cigarette demand hurting profits.
I’d definitely invest in at least one financial services share. I find insurer Legal & General attractive, with a 6.7% yield. The company’s commitment to its dividend seems strong, having resisted the temptation to suspend it during the pandemic like many peers did. A strong brand should help the company continue to grow its customer base. Financial services shares can suffer during recessions when customers have less cash to invest.
I’d also put some money into Vodafone. The telecoms operator currently yields 6.7%. However, there is always the risk that the company’s heavy debt load leads to a dividend cut.