The market context


Chief Investment Officer Piers Hillier explains the market situation as it stood in April 2017, and looks at Brexit's impact on the environment at the time

PIERS HILLIER: One of the challenges for asset managers in 2016 was really outflows, particularly in UK equities but also UK central assets by international investors who are concerned that a vote to leave would create a significant instability in the UK economy, and I have to say we thought that might happen as well. So, just as 9/11 and the Lemon crisis, the financial crisis, created a mini recession, we were nervous that the shock of a Brexit vote could potentially do that in the UK.

Pleasingly, some of the actions taken immediately after that but also the weakening of Sterling mitigated that impact immediately on the UK economy, but we still live in uncertain times, and until we’re clearer as to the outcome, in terms of triggering Article 50 and the negotiations with our European partners, that uncertainty will continue to exist, and in some ways explains why UK bond yields are still one of the lowest both now in Europe versus the US, but also why the UK equity market struggled against its broader peer group worldwide.

We’re obviously trying to forecast and make assessments as to what we think the outcome is going to be but, as we saw in 2016, there was a lot of uncertainty that people didn’t envisage and that created a lot of volatility. Sometimes that volatility provides greater opportunities.

I think for us, our critical objective in 2017 is to understand what are the objectives in terms of the UK government; in terms of Article 50, and the negotiations with Europe, and what that means for long term growth of the UK economy. I think we’re very keen to encourage the message that the UK is open for business and to welcome investment, but we understand the challenges and uncertainties that creates. And therefore, as a consequence, the companies we invest in are uncertain themselves and they are going to delay and defer decisions so we need to be aware of where those risks sit in the investments that we hold.

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