Well what a week that has been! Not only the surprise outcome of the referendum but the political maelstrom that has been unleashed on the country.

This article focuses on the impact for customer’s investments.

We went into the referendum with most portfolios holding a broad spread of investments, including bonds (fixed-interest securities) UK Commercial Property, UK & overseas equities.

This is how they performed;

 

THE GOOD

UK Equities have been very resilient – particularly FTSE 100 index stocks. The reason is that around 70% of earnings by the constituents of our flagship index are earned overseas. As Sterling fell on the foreign exchanges this has boosted the value of these earnings and thus supported the domestic stock market.

Here is a chart of the market over the month of June;

As you can see, the index ended up higher at the end of the month than it started – a nice result. We fully expected the index to be down after a vote to leave the EU – but not down that much, due to the currency factor mentioned above.

 

Overseas Equities have been a boon. Typically, any overseas share-holding has improved by around 10% as Sterling fell on the foreign exchanges.

Here is a chart of the global equity index which gives you the idea;

We were surprised when all the world’s stock markets fell last Friday, as we didn’t perceive our Brexit as being a global issue. We think the initial response was due to concerns that this might be the start of the end for the EU and it was noticeable that European markets fell more than the UK market last Friday.

Bonds (fixed-interest securities) have strengthened. Investors initially rushed for the exits and there was a flight for quality, so they bought bonds and prices rose. There is also talk of the Bank of England cutting interest rates and possibly further quantitative easing, which is supportive of the bond market.

 

THE BAD

UK mid-sized and smaller company shares have suffered a 10% fall. Investors don’t have much exposure to this sector of the market, but most clients have some. We use funds that invest in such companies as over the longer term they tend to produce better returns. It’s not clear at this stage how long it will take values to recover.

 

THE UGLY

UK Commercial property has been the stand-out loser of the referendum. Property values are correlated with the economy. As its now touch and go that we will have a recession, the outlook for commercial property switched overnight from being benign to being poor. Historically, commercial property values move steadily, but the managers who run property funds had emergency meetings with valuer’s and immediately wrote down the value of their funds with typically a 5.0% reduction.

It may be that the weakness of Sterling will attract overseas buyers – but this is more of an issue for the city of London property market than the rest of the UK, where values are underpinned by the general level of economic activity.

We were reducing property exposure and have reduced further since last Friday, adopting a “wait and see” approach on the rest.

 

HOW HAVE INVESTORS FAIRED?

A client phoned last Friday to see how his investments in the Parmenion Income Portfolio were doing. We couldn’t say as we only know values for the previous day the following morning. We offered to send the figure on Monday noting that the valuation on the close of business Thursday was £80,070.

On Monday the value at Friday’s close was £81,041.

Investors seem to have escaped relatively unscathed. Some portfolios have actually gained over the month, but as ever, we are in it for the long-haul.

Please get in touch if you require further information.