Dynamic-Opportunities---Uncertainty

Only one thing to do with uncertainty: embrace it

 

‘Knowledge is an unending adventure at the edge of uncertainty’ – Jacob Bronowski

If you asked me at the start of the year, a few months ago or even right now which is the most opportunistic global stock market out there, I would have replied / do reply…the UK. 

Now this is no permanent home bias playing out here. I have spent almost all my investment management career managing portfolios where the biggest slug of investments are in any region but the UK. However you have to go where the opportunities are and today – due to the highly publicised Brexit political angst – the opportunity is in the UK.

I believe we can see this at three levels. The first is undoubtedly centred in the local economic data which remains highly variable but not terrible. For every consumer or business confidence survey scuttling around a multi-year low, the improvement of wage data trends – hugely important for any economy where consumption is close to two-thirds of economic output – are far more ignored. This latter aspect is deeply indicative of the second theme I see within the UK financial markets: global fund managers deeply dislike them. Last week’s most famous and regular survey of global fund managers responsible for many hundreds of billions of assets placed the UK at the bottom of the allocation charts (versus historical norms). I think such a view is desperately misplaced because it fails to give any credence to the third element attractive element of the UK market: the great scope for stock selection.

Last Thursday exhibits this best. As one cabinet resignation hit after another, a number of more domestic focused sectors – such as the banks, housebuilders and retail stocks – struggled but someone dropping in from Mars for the day would wonder what the fuss was all about as the leading UK share index – the FTSE-100 – ended slightly up on the day. This, of course, reflected the benefit for the swathe of export-focused stocks that a lower value of the Pound gives. Now if you think about some of the issues – and fear – implied in the above paragraph, anything which gives a semblance of hope and faith that the Brexit angst and uncertainty may be worked through is going to provide some scope for these moves to be reversed – and much more. Certainly our experience over the last year in the Global Dynamic Opportunities Fund is that the UK market has offered plenty of opportunities as evidenced by our recent profitable trade in homewares retailer Dunelm as well as historic profitable positions in names such as easyJet, Kingfisher, DixonsCarphone and others. We anticipate more of these profitable trades to come in upcoming months.

In short this – aligned with a pragmatic view that a no deal and deeply messy Brexit period for the UK economy is not going to occur – is why we retain an overweight position in UK equities and do not expect this to change for the foreseeable future.

Chris Bailey, Chief Investment Officer 

Daniel Stewart & Co

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Disclaimer: Daniel Stewart publication is a general publication providing commentary primarily on politics, economics and the market. It is not intended as an offer or solicitation to buy or sell securities. Daniel Stewart & Co plc has not independently verified all the information given in this document. Signals may contain extracts from Daniel Stewart & Co Research recommendations or other investment or market commentary. It should not be relied upon when making investment decisions and Daniel Stewart accepts no responsibility for any use that may be made of these comments or for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and investors should seek advice on the suitability for their personal circumstances of any investments or investment strategy covered. The past performance of an investment is not a guide to its future performance and the value of an investment and any income from it may fall as well as rise and is not guaranteed. Where an investment is denominated in a currency other than sterling, changes in exchange rates may have an adverse effect on the value of the investment and the income thereon. In addition, if a security is listed outside the United Kingdom (UK), the listing regime and local regulation may differ from that which pertains in the UK. This may affect the degree of protection that consumers receive. Daniel Stewart & Company is a member of the London Stock Exchange. Authorised and Regulated by the Financial Conduct Authority.

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Daniel Stewart & Co provides investment, funding, foreign exchange and fund management services to individual and corporate clients. Each week our experts comment on some of the developments from macro to micro that have caught their attention.

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