Investment Bulletin

Spring 2019


As the date on which the UK was to leave the EU (29th March 2019) has now passed, we begin the second quarter still an EU member state. The UK political scene remains deeply divided with a large number of scenarios still on the table. Somewhat surprisingly, the effects of this deep uncertainty has been relatively muted in markets. The pound, probably the best barometer of investor sentiment on Brexit, has been stable in recent weeks, trading in a range of $1.30 to $1.33 against the USD. This reflects a market view that the UK will likely avoid “crashing out” of the EU, and that some form of deal or further extension will occur.

For investors in the UK, that will inevitably have a domestic bias, the risks surrounding Brexit are multi-faceted: we must not only consider the impact on our domestically focused investments (those companies exposed to UK Plc.), but also our exposure to overseas companies translated back into sterling. If a deal is struck that favours a soft Brexit and greater political stability, that will undoubtedly be sterling positive meaning overseas investments translated back to sterling will be negatively impacted. The inverse, although more priced in by markets, is also true.

Away from Brexit, the first quarter of 2019 has been the polar opposite of Q4 2018, with risk assets (equities) rallying strongly. US equities had their best first quarter in 20 years. The catalyst has been a dovish stance from the US Federal Reserve relative to the narrative last year of sustained interest rate rises. On the economic front, the global economy has relied on US growth to remain above water in recent months, but the picture has become a little brighter with China returning to expansion in the manufacturing sector in March.

Although welcome, we remain cautious of the rally seen so far this year in equities and would not wish to chase the market higher by adding significant risk to the portfolio at this time. However, global equities are not expensive: on a long-term basis, they are trading around a median valuation, when looked at on a forward price/earnings basis. We are not experiencing an overly exuberant market in terms of investor sentiment, often typical of the final stage of a bull market – so believe retaining a material allocation to equities at present, is sensible. This is especially so given the alternatives on offer, notably fixed income assets – which have poor absolute and real (relative to inflation) return expectations.

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Opinions constitute our judgment as of this date and are subject to change without warning. The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Past performance is not a reliable indicator of future results. Forecasts are not a reliable indicator of future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. Interested parties should seek advice from their Investment Adviser. Charlotte Square is a trade name of Raymond James Investment Services Ltd (Raymond James), utilised under exclusive licence, Raymond James is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3779657. Registered office: Broadwalk House, 5 Appold Street, London EC2A 2AG. www.raymondjames.uk.com