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Investment views

Investec Asset Management portfolio managers give their views on the UK General Election result

13 December 2019

The views expressed in this communication are those of the contributors at the time of publication and do not necessarily reflect those of Investec Asset Management as a whole.


John Stopford - Head of Multi-Asset Income

We expect some further recovery in sterling and UK domestic stocks on reduced uncertainty and the removal of the tail risk of market-unfriendly policies ̶ although a fair amount of this is already in the price, given the polling in advance of the election. UK political uncertainty has manifested in weak business investment, which has contributed negatively to GDP growth for five of the past eight quarters, and a subdued housing market, with national house prices failing to keep track with inflation.

The Conservative win has provided some near-term economic clarity, as the UK will finally leave the EU and public sector net investment will increase back to historically high levels. We believe markets will begin to anticipate a Boris ‘boom-let’. This would tend to support higher gilt yields (the UK is one of the most expensive government bond markets we cover) and a stronger pound. However, we feel the rally will be limited, due to the potential for a swift post-Brexit transition to further uncertainty about the UK’s future trading relationship with the EU.

To limit the impact of election uncertainty on the portfolio, the Global Multi-Asset Income Fund was positioned with relatively low weights in UK domestic assets and sterling.

Simon Brazier - Co-Head of Quality

We expect an initial bounce as the market reacts positively to greater political certainty, particularly with regards to Brexit. Sterling is likely to appreciate further amid this initial optimism, benefiting smaller more domestically focused companies relative to their larger more globally diversified peers.

The market had already started to price in a Conservative majority, which may limit the size of any short-term gains, and in reality ‘getting Brexit done’ only applies to the Withdrawal Agreement. Far greater uncertainty still exists around a trade agreement, where the risk of ‘no deal’ remains, particularly given Boris Johnson’s stated aim of a deal by the end of 2020 or leaving without one. We believe business investment is likely to remain weak amid this ongoing uncertainty. With consumption growth constrained by a record-low savings ratio, the UK economy is still vulnerable in the longer term.

The UK Alpha Fund continues to focus on high-quality companies that are able to generate cash even in tough economic conditions, and re-invest that cash at attractive rates of return. The Fund also continues to carefully manage economic, currency and liquidity risk at the portfolio level.

Alastair Mundy - Head of Value

The UK Special Situations Strategy is significantly overweight companies with a domestic earnings base, relative to the FTSE All-Share Index. Many of these shares have significantly underperformed the market for several years (from even before the Brexit referendum vote) and have struggled in recent years as a resolution to Brexit appeared ever harder to secure. This disappointing share price performance has, to a great extent, been justified by equally disappointing operational results, a consequence of a soggy UK economic backdrop, industry disruption (affecting the retailers for example), ongoing regulatory events (e.g., those affecting banks) and perhaps excess capacity in a number of industries.

The new Conservative government should bring resolution to Brexit (although many would argue that leaving the EU is just a first small step in Brexit) and therefore we believe it favours domestic earners over international earners, as:

  • Sterling could strengthen.
  • We are due a budget, in which we would expect to see voters thanked for making the ‘right’ decision, and in which the government could commit to higher fiscal expenditure. 
  • Many consumers and companies have probably been delaying consumption and investment, so we could see a rebound in activity.
  • Overseas bidders will be more confident of the economic outlook and may seek to buy up cheap UK assets.
  • International equity buyers, who have probably been avoiding UK equities and particularly domestic earners, may be tempted (or forced) back into the market.

With positions in UK-centric banks, builder’s merchants, UK retail, UK food retail, DIY and housebuilding, we expect the newly elected Conservative government to be positive for the Strategy.

Ken Hsia - Portfolio Manager, 4 Factor - Europe

A Conservative majority had increasingly become the consensus view in the run-up to polling day, reflected in the gradual strengthening of sterling. While it introduces the least fresh uncertainty, the final Brexit terms and any trade deal with the EU remain to be established. Thus, while we expect a relief bounce in UK-centric companies that have de-rated to trade at a discount to the rest of Europe, we do not expect an immediate impact on incomes or corporate investment within the UK.

We maintain neutral portfolio positioning with respect to Brexit. Much of our UK weighting relates to multinational companies that derive most of their revenues overseas, although we do hold Lloyds Bank and Berkeley Group, the UK housebuilder. We believe both of these stocks are quality assets trading at a discount that should benefit from the incremental reduction in economic uncertainty.

All investments carry the risk of capital loss.

Important information

This content is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contains statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual outcomes may differ materially from those stated herein.​
All rights reserved. Issued by Investec Asset Management, December 2019.​

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