As part of the support that we as investment managers get, our research team make it their jobs to talk to as many people as possible to try and get the inside track on the issues at heart. Over the years we have been privileged to meet many current and former politicians and I am delighted that this issue of Prospects features a guest editorial by Natascha Engel, who up until the last election was Labour MP for North East Derbyshire.
Upon reading her contribution and a subsequent meeting in the office, I am a little more sanguine about the current government’s chances should we have an election in the near future, although who will be leading that campaign is anyone’s guess.
We have been attempting to mitigate the political risk over the last 12 months by reducing our exposure to the UK which has seen significant volatility in recent months. We have had a mixed year thus far in 2018 with US markets, which makes up around half of the capitalisation of world stock markets, showing a small increase and UK equity markets falling by just under 10%.
Of course the rise in the US market has been dominated by the technology sector, particularly a few large capitalisation stocks, including the FAANGs: Facebook, Apple, Amazon, Netflix and Google. These rises have been exaggerated by the nature of passive fund investment and the considerable amounts of money invested in exchange traded funds, which are directing more capital to the large capitalisation stocks to the detriment of the smaller ones.
I do not think this is a positive trend, as it helps fuel the overvaluation of some of the larger stocks. It does mean we are looking to invest on a more regional basis, although it is worth pointing out that by investing in some regions of the world we are not necessarily getting the exposure to the countries that we might expect. Many of the companies we invest in operate on a global basis, such as the UK’s Diageo and GlaxoSmithKline who have considerable exposure to the US, or Prudential and its exposure to the Far East.
With regards to in ation, which is gradually increasing, John Royden gives his views within his Bond Focus on the seemingly eternal question of whether we should change the measure used from RPI to CPI. We also feature an article by Natalie Berg who presented at our conference in May. Natalie is a retail expert who regularly comments on the structural change taking place on our high streets thanks to the inexorable rise of Amazon, which also features as one of the stocks covered within equity prospects, and other online retailers such as Ocado, which is covered in the Company Meetings feature.
Finally, I’d like to draw our clients’ attention to the news article highlighting that we are no longer accepting cheques as payment, in a bid to counter the rise of fraud. We know this might not be ideal for all, but the risks of fraud are high, as described on page 32, and we feel it is our responsibility to act.