Although the Brexit vote now seems like old news the continual posturing by both sides of the voting establishment ensures that it remains in the headlines. The fact that no one can realistically understand the full ramifications of the vote at this point only serves to highlight the uncertainties involved and, to use a well worn cliché, stockmarkets do not like uncertainty. As a result whilst we in the UK small and mid cap market have recovered somewhat as the worst of the bearish domestic macro predictions have proved to be unfounded there has been a general flight to liquidity and global ‘safe haven’ stocks by UK equity investors. The unexpected result of the vote in the US appears in the very short term to have refocussed minds on underlying ‘value’ as it has forced investors to reassess just how defensive these type of stocks are given their relative ratings, and whether they represent the best place for investment if fiscal stimulus is now to be the order of the day in both the US and at home. The asset allocators and strategists in the ‘City’ and on ‘Wall Street’ are having to try to come to terms with this new order and the recent sell off in bonds suggests that ‘risk’ assets may start to become more popular. With a wide range of companies in our portfolio with strong balance sheets, generating cash, paying growing dividends and on relatively undemanding ratings, we believe we are well placed if this is the case.
In the portfolio one of our worst performers in the month was Cobham after releasing a disappointing trading update, although the shares have bounced strongly since the vote in the US on expectation of a pick up in defence spending. A wide range of our housing related shares also underperformed including Epwin, Bovis, Crest Nicholson and Countrywide but this was the only performance ‘theme’ and we continue to expect our most ‘UK centric’ stocks to remain volatile. Other positives were Games Workshop after a dividend announcement and Dee Valley which was the subject of an agreed bid. Importantly for the fund, the assets that we own held up reasonably well after the surprise US election result which was partly a realisation that the dramatic sell off in the immediate aftermath of the Brexit result was an overreaction given the financial health of our portfolio. In the short term all eyes are now focussed on the Autumn statement and the prospect of some added tailwinds in a domestic economy that has proved to be relatively robust in the face of the wholly unexpected outcomes of two ‘game changing’ votes.