This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
The UK 100 is doing its best to keep the post-Brexit recovery alive in spite of the understandable uncertainty that has arisen following the referendum. But clients keep throwing the same question my way – how can the index be up if my beloved banks, financials, miners and housebuilders are all on their arse?
This stems from a misconception that these are the only sectors worth trading. They may indeed be what tend to deliver the attractive volatility and share price moves that short term traders like to play. But what many fail to appreciate is that they still only represent 29% of the index (43% if we include the Oil majors who are actually rallying as weak GBP beneficiaries). That leaves a whopping 60-70% of the index to drive it higher or lower.
And if we look at what’s been driving the UK’s blue-chip index over the last week it is anything but a surge in risk appetite. It’s been a race to the safe havens and non-cyclical high-yielding defensives (43% of the index; Tobacco, Healthcare, Beverages, Telecoms, Utilities, Food, Consumer staples). The stuff that we will have to consume whatever the Brexit outcome.
While many continue to eye financials and miners as bargains – which they may well ultimately prove as they did in the aftermath of the 2008-12 financial turned sovereign debt crisis – they remain a gamble at this very early stage of Brexit (it’s not even been two weeks; the global growth landscape is clear as mud). They also continue to leak on news that property funds are raising the drawbridge on redemptions linked to property market downturn fears and the banks risk contagion from Italian peers blowing up (BDEV, TW, RBS, LLOY; down 30-40% since Brexit).
All the while the safer guys keep pushing higher (FRES, RRS +50 to 60% since Brexit; BATS, DGE, SHP +20%). They may not be sexy but the defensives and safe havens have certainly lived up to their name. The question now is how much further they can rise. Many say not much. Then again we’ve been asking the same questions of bond prices for years, and now look at all those negative yields.
Mike van Dulken, Head of Research, 6 Jul
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
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