Our Investment Commentary for Q2 2016 (1 April – 30 June)

Our Investment Commentary for Q2 2016 (1 April – 30 June)

Global markets experienced substantial volatility in Q2 as they continue to grapple with a number of economic and political issues. Although the main focus for UK investors has been on the domestic economy and the EU, it is important not to forget global economic issues such as China’s slowdown, the prospect of further US interest rate hikes and the level of public and private debt in a low inflationary/disinflationary environment across the world.

UK stocks saw large swings in sentiment in Q2, especially following the Referendum result. Since the UK voted to leave the EU, we have seen Mark Carney, Governor of the Bank of England, hint at the prospect of an interest rate cut, as well as George Osborne’s pledge to slash corporation tax to encourage investment spending. Carney’s comments fuelled a sharp recovery in equity prices after the initial fall.

The FTSE-250 finished the quarter 2.4% lower, despite falling as much as 10% on 24 June alone. Conversely, the FTSE 100 finished up 7%. This is because the index is made up of the largest UK companies with predominantly global revenues, so the fall in sterling will inflate their overseas earnings.

Sterling fell by over 7% in Q2, but by 10% in the last week of the quarter alone. This should help to stabilise the economy in the short run, boosting the competitiveness of exports, as the UK looks ahead to negotiating its new relationship within Europe. One concern over the weak currency is that it could promote imported inflation which might raise questions over Osborne’s plan to ease monetary policy.

Despite a downgrade in the credit rating of UK government debt, gilts remain in high demand as investors seek a safe haven, reflected by 10-year gilt yields which have now reached record lows of 0.8%.

We expect there to be significant political and economic uncertainty in the coming months, which is likely to be reflected by market volatility, highlighting the importance of a diversified investment approach.

 

Market Index Performance 2016 Q2 (% change) GBP Performance

2015 Q2 – 2016 Q2 (% change) GBP

Performance 2016 Q2 (% change) Local currency Performance 2015 Q2 – 2016 Q2 (% change) Local currency
UK FTSE 100 7.04 3.80 7.04 3.80
US S&P 500 7.88 21.54 1.64 3.31
Eurozone FTSE Europe Ex-UK 4.85 6.34 0.77 -8.40
China MSCI China 7.52 -9.85 1.36 -23.32
Japan Nikkei 225 12.04 8.01 -3.64 -23.03
Emerging Markets MSCI Emerging Markets 8.20 3.46 1.58 -7.70
World FTSE All World 7.91 14.62 1.63 -2.19
UK Gilts FTSE All-Stocks 6.36 13.50 6.36 13.50

Our Strategic Asset Allocation

Portfolio Cash/Bonds % Equities % Alternatives (e.g. Property/ Infrastructure) %
Cautious 50-90 10-40 5-20
Income 25-65 25-65 5-20
Ethical 25-65 25-65 5-20
Balanced 25-65 25-65 5-20
Growth 5-25 60-90 5-20
Adventurous 2 88-100 0-10

Current Positioning

Cautious:
Bonds/Cash: 51, Equities: 38, Alternatives: 11

Income:
Bonds/Cash: 25, Equities: 65, Alternatives: 10

Ethical:
Bonds/Cash: 30, Equities: 56, Alternatives: 14

Balanced:
Bonds/Cash: 25, Equities: 65, Alternatives: 10

Growth:
Bonds/Cash: 5, Equities: 87, Alternatives: 8

Adventurous:
Bonds/Cash: 2, Equities: 98, Alternatives: 0

 

Our approach is to help our clients benefit from attractive equity returns and target sustainable dividends from a diversified portfolio, on the basis of our diligent research and analysis to highlight interesting investment opportunities and mitigate risk as far as possible.
[Jonny Rusbridge, Seabrook Clark Ltd, 5 July 2016]
Please note, our Investment Commentary is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.

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