UK shares have underperformed US shares for a while. That’s well known. Despite that though I have a lot of confidence in both FTSE and AIM shares in the coming years. I have a long watchlist of UK shares and these are some of the ones I’d be happy to buy and hold for years or even decades to come, for capital growth, income, or both.
Of course, not all shares do well. But by diversifying across 10 choices, I’d expect some to be long-term winners. Five are defensive shares and five tap into trends that should only grow further over the next decade.
UK defensive companies
The UK’s largest grocer by market share, Tesco, is one of those stocks that has defensive qualities. Demand for groceries isn’t going to disappear in the next decade, no matter how much technology changes our lives. It’s a very stable business. The downside is the discounters may continue to take market share. A supermarket price war could also hurt profits and margins.
National Grid and SSE are both energy companies tapping into the growth of renewable energy. They are regulated businesses by and large, which makes forecasting future revenues easier. They also pay a high dividend yield as a result. The downside is they struggle to raise prices. Also dividends, particularly for SSE, seem overstretched and could face being cut in the future.
Reckitt Benckiser and Diageo both provide consumer goods. The former focused on hygiene, the latter on beverages. Both tend to be dependable long-term compounders. This is because of their strong brands and international sales. The downside is if consumers switch to more local brands or there’s a deep recession that could affect their ability to raise prices.
Alongside these defensive companies I’d invest in shares that are linked to expected changes in our world to make the most of the opportunities of the next decade.
UK shares in growth industries
The potential downside with many of these shares is that over the last 12 months their share prices have gone up substantially. I’d want to be very confident then that their future growth is very strong so the price-to-earnings isn’t too high.
Experian is a share that has been bought by the highly respected Nick Train. Its data holding and expertise should help it grow for many years to come.
Computacenter taps into increased adoption of technology. The downside is it has already been boosted a lot by the shift to working from home accelerated by the pandemic.
D4T4, DiscoverIE, RenalytixAI are all smaller shares that I think have huge potential to grow, but all three are risky. Not least because another company might produce better technology which could make them obsolete, or unable to compete effectively.
I’d certainly not buy shares and then never revisit the investment case. If the outlook for the company radically changed then I’d ask if it was still worth holding. Overall, though I think these companies have qualities that make them long-term holds for me.
Andy Ross owns shares in National Grid, Reckitt Benckiser, and Diageo. The Motley Fool UK has recommended Diageo, Experian, and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.