Equities still an opportunity?

Mon 08 Jul 2019

• According to data from the Financial Times and Bloomberg, investors have withdrawn more than £20bn from UK equity funds since the Brexit referendum. The number dwarves the £4bn estimated net inflows from ETFs during the same period.
• Outflows from funds and inflows from ETFs suggest that the “slow money” is moving away from UK equities, leaving more room for speculative investors. The main characteristic of the latter is that they are likely to withdraw quickly, either following very good or very bad returns. Conversely, the former is invested for the long run and tends to add to stability.
• Currently valuations are below average, discounting significant risk despite the fact that UK large-caps only get a third of their earnings from the UK economy.

• In recent times we slightly increased our weight in Sterling ( to which we had a long standing underweight) and took our profits from the position, in fear that a protracted Brexit could end up being no Brexit at all. This would be economically and market positive, but it could hurt our portfolios versus the benchmark. In the last investment committee, following the developments in the Tory Party, we revised our probabilities for a Hard Brexit significantly upwards. We thus reversed that move partly, moving away from UK small caps and into US and Japanese equities, to make sure portfolios are more protected against the probability of a disorderly Brexit.