When the Magnificent Seven falter, anticipate British stocks to take the lead

The Diverse Income Trust's fund manager, Gervais Williams, chooses three British stocks to invest in

The stock market has produced outstanding returns over the past ten years. In sterling terms, the Magnificent Seven increased by a factor of 21 points 6 during the ten years ending April 22, 2025.

Good news? Well, both yes and no. High returns are a great thing. However, supersonic returns give rise to two enduring issues when they continue for years on end.

First of all, they terribly misrepresent the actions of investors. Risk-taking becomes second nature. The riskiest stocks also experience severe losses when the music stops. Risk-taking jobs result in enormous, irreversible capital losses.

Second, there is often some resemblance among the winners. The market is overflowing with correlated positions as a result of sustained success. While it doesn't matter on the way up, it does at the top.

Therefore, what can market participants do? We would argue that everyone should remove holdings that are somewhat associated with the winners when market patterns change. We have a saying that goes, "Make sure you change enough during times of change." What should one do if the Magnificent Seven have left?

In our opinion, you should choose companies that exhibit the opposite traits: steady growth and abundant cash flow rather than unrelenting growth that drains cash flow. quoted in the UK but not listed in the US. Multicap, which includes small and microcaps, but not megacap. Thankfully, there are many such businesses in the Diverse Income Trust's entire portfolio. We believe that a new supercycle in the UK is about to begin.

Making money off of protectionism.

Even though globalization has increased supply for everything, protectionism means that regular lines may occasionally run out of stock or that when a distant retailer fails, the market will be suddenly overrun with containers full of goods that are being sold at a discount.

All of this stop-start will be a nightmare for retailers. On the other hand, online category killers ought to benefit disproportionately. Hourly changes in their offerings are possible, and they can pass on the enormous savings when they purchase job lots. The majority of buyers are not looking for a particular brand of new bathroom sink, refrigerator, or freezer.

They desire choice: excellent goods delivered the following day at competitive prices. We think that Victorian Plumbing (Aim: VIC) and AO World (LSE: AO) will both grow and produce substantial cash flow.

However, defense spending is expected to increasenot for fighters or tanks, but for drones, lots of them. All of the newest technologies will be included in brief development cycles.

Because of this, defense control systems will have to constantly be upgraded in order to stay up. Concurrent Technologies (Aim: CNC) creates and provides advanced defense computer boards. The business has received an increasing number of larger orders in recent years. We see this as just the beginning.

A winner in the world of internet gambling.

Major economies like the US are implementing regulated online gambling. One of the most well-liked games that competitors require is Slingo. It is owned by Gaming Realms (Aim: GMR), a micro-cap listed in the United Kingdom.

There is already net cash on Gaming Realms' balance sheet, and the amount of money is growing at an accelerating rate. The issue in the mega-cap era was that some micro-caps were simply too small and, therefore, too inexpensive for professional investors to take into account. But when they begin to gain value, institutions find them out of the blue, and their share prices can increase sharply very quickly.