Investor 91

THE INVESTOR CENTRE

he UK equity market made a

steady recovery from the Brexit

sell-o , albeit primarily driven by

those sectors and stocks that were

obvious bene ciaries from the

weakness of sterling.However, as the

realisation that the economy had

merely paused post the vote, stories of

imminent recession lost credibility and

domestic stocks began to recover.

Overseas investors, encouraged by

the market fall and currency weakness,

began to transact on UK stocks and

assets, helping con dence.This leaves

the UKmarket in calmer waters but

Brexit has yet to happen and it would

be realistic to expect sterner tests ahead.

Although our transaction activity

was initially skewed towards picking

up opportunities after the sharp

sell-o in domestic stocks, latterly it

has become more broadly

based.Of

note has been our decision to

emphasise BP over Shell and increase

the holding, likewise forAviva among

our life assurance

holdings.We

subscribed to the Melrose rights issue,

which has led to a signi cant increase

in the exposure here. Finally,we used

the share price strength, driven by

sterling’s weakness, to reduce holdings

in Pearson and Tate & Lyle.

lobal stocks started Q3 with a

post-Brexit rebound. Sterling

weakened against most major

currencies, though currency volatility

diminished through the quarter. In

local terms, emerging markets

outpaced the world,while the UK

outpaced developed market stocks.

Among our top contributors were

ABB andMicrosoft.Global

engineering companyABB reported

its seventh consecutive quarter of

operating margin improvement.

Microsoft is increasingly becoming

a cloud-based commercial software

provider – areas where it holds strong

positions and is growing rapidly.

The largest detractors wereTesco

and Progressive.The leading UK

grocery retailer still faces strong

competition from discounters, and

investments in lower prices should

lower the pace of margin expansion.

However, based on our estimation of

normalised pro tability, the shares

remain attractively valued.One of the

largest personal auto insurers in the

US, Progressive reported higher than

expected catastrophe losses but remains

one of the industry’s better operators.

Finally,we exited our positions in

Joy Global and Fanuc.

fter Q2’s focus on Brexit,

investors returned to global

issues: economic growth and company

earnings,US interest rates, central

bank stimulus,China and the

November presidential election. In

August, the Bank of England surprised

markets positively with a 0.25% cut in

rates and revived its QE programme.

Equity markets made progress,with

strong liquidity the major

driver.We

sawsome pro t-taking inbond markets

in September as investors worried that

central banks had run out of repower

for further monetary stimulus, and

that US interest rates might rise.This

was a quiet period in terms of activity

and we made no signi cant changes to

asset allocation. In the UK one of our

larger holdings,ARM, agreed to a

generous bid from Japan’s SoftBank,

which we added to in our Japanese

portfolio after underperformance.

Liquidity can drive equities higher in

the short term but valuations are more

important in the longer term and,

with the possible exception of Japan

and Emerging Markets, they look very

extended. Fiscal stimulus may replace

monetary stimulus,which would be

better for equities than bonds.

ARTEMIS

UK & International Income

Stocks have been broadly based

with BP and Aviva added to portfolio

ARTISAN PARTNERS

Global Managed

Global

ABB and Microsoft provide greatest

positive contribution to portfolio

AXA INVESTMENT

MANAGERS

AXA Framlington Managed

Balanced Managed

ARM’s purchase by SoftBank moves

the holding to Japanese portfolio

UK stocks continued

to recover, buoyedby

sterling’sweakness

UKbene ts frompost-

Brexit reboundhelped

byweakenedpound

Global issues return

to the investment

agenda

Dan O’Keefe, David Samra and

James Hamel

Richard Peirson

Adrian Frost

THE INVESTOR