If I had a lump sum of £10,000 to invest right now, I would buy a basket of UK shares.
While many investors are currently avoiding the UK due to its uncertain economic outlook, I reckon this could be a great opportunity.
Indeed, many UK-based businesses are reporting exceptional trading performances. And it is these enterprises that I would concentrate on buying for my portfolio with a lump sum investment.
Investing in UK shares
Some of the most exciting companies on the market right now can be found in the tech sector. Organisations such as the anti-virus software producer Avast and Softcat, have large international divisions. They are also benefiting from the global growth of technology, which is proving to be a significant tailwind for many businesses.
Another benefit of investing in the UK market is diversification. While the FTSE 100 is generally considered to be the UK’s leading stock index, more than 70% of its profits come from outside the country. This makes it more of a global index than anything else.
Unfortunately, it has not escaped the general depressed investor sentiment towards UK shares. Once again, I think this is an opportunity. Some of its most significant constituents, such as BHP and BP, are large global companies, which should benefit from rising commodity prices in the years ahead. At present, these businesses are trading at depressed valuations, offering an opportunity for savvy investors.
How I’d invest
Considering all of the above, I would use a mixed approach to investing in UK shares today.
First of all, I would acquire a low-cost FTSE 100 index tracker for my portfolio. This would give me access to 100 of the UK’s largest listed companies and their globally diversified income streams.
With this foundation in place, I would also look to acquire some more specialist investment funds that focus on finding undervalued UK shares.
A great example of the sorts of funds I would acquire is Slater Recovery. This fund aims for growth by investing in companies that have low price-to-earnings (P/E) ratios in relation to their earnings growth, and strong cash flows and financial positions.
Finally, alongside the active and passive funds, I would buy a basket of cheap UK shares. Technology stocks, such as those listed above, as well as high-quality consumer goods companies, should provide high total returns for investors in the years ahead based on the outlook for the global economy.
The bottom line
I would invest £10,000 using the approach outlined above in today’s market. I think the three-pronged process will give me exposure to some of the UK’s most successful companies and undervalued investments.
Using funds is also one of the easiest ways to build a diversified basket of UK shares relatively quickly. It will also reduce overall risk by spreading my money across several investments.