Large caps will outperform in 2011

ON UK GROWTH

F&C's Peter Lees says larger-cap shares are in a healthy state thanks to strong balance sheets and cashflow.

The UK equity market is modestly valued on a prospective PE of 11x and prospective dividend yield of 3.5%, higher than the equivalent yield on benchmark gilts. UK equities should benefit from having a high exposure to the faster-growing emerging economies. Also, the market has a large percentage of its value represented by large blue-chip defensive companies on historically low valuations such as pharmaceuticals, food retailers and telecommunications. Quoted companies in general have strong balance sheets and cashflow. While corporate bond yields remain low, this should hopefully enco...