Looking For Opportunities In The Brexit Turmoil

Colin McQueen, Senior Fund Manager: Global Equities, Sanlam Four

Given that markets have been rallying ahead in anticipation of a Stay vote, the surprise pro-Brexit announcement was clearly not what the markets had expected. Says Colin McQueen in our UK office, the impact on the immediate outlook will not be dissimilar to those outlined in the article we published earlier this week, titled “Brexit, what does it mean for the investors?”

1. Impact on direct economics
The major impacts will be on trade flows and investment spending in the UK, particularly the latter, thanks to the resultant uncertainty. As the UK economy only represents 4% of world GDP, however, this is not expected to be a significant game changer.

2. Bigger impacts on the political sphere
Here we are largely entering the realm of the unknown. We have already seen the resignation of David Cameron and the first calls for a renewed Scottish referendum. This turmoil is likely to complicate the difficult task of realigning the UK’s trading relations with the EU and the rest of the world. There is also significant uncertainty over the political fall-out across the rest of Europe. As many as 11 other European countries also have notable anti-EU parties, calls for other referendums may spread. The EU authorities will be caught between the desire to ease the economic impact of UK exit and not making it look like too attractive a proposition for other EU members. We would expect to see intervention from central banks to try to steady market nerves, however, we cannot know with certainty how this will pan out in the near term.

Markets obviously loathe the uncertainty that this causes and we are seeing an inevitable reaction of a sell-off in ‘risk assets’ generally.

The impact across our global portfolios varies across the two strategies we run:

A) For the Sanlam FOUR Stable Global Equity Fund (which have a quality overlay to our value process): The fund is falling in absolute terms (in US$), but by much less than wider markets. This is a reflection of the fund’s strategy of owning cash-only generative non-cyclical stocks. These, by definition, are less sensitive to the economic environment. The fund has around 10% of its assets in UK listed stocks, which are entirely in multi-national companies with comparatively little UK exposure. The fund is more heavily skewed to US listed stocks primarily, as we have found much better valuations amongst US healthcare and technology companies.

B ) For the Sanlam FOUR Global Equity Fund (value-orientated strategy), where we hold both a mixture of non-cyclical and cyclical companies, we are seeing a bigger impact on the portfolio following the Brexit announcement. The fund has around a 7% exposure to UK-listed stocks, and again these are more heavily skewed to multi-national stocks (with the exception of Barclays). The fund is seeing a wider impact on cyclical holdings outside of the UK. Given widespread valuations in markets, a lot bad news has already been priced in for other cyclical companies, but the heightened level of uncertainty is likely to continue.

We remain calm, and continue to look for opportunities to pick up assets that may have been oversold amid the carnage in the markets. The most straightforward options we are looking at are multi-national companies and exporters in Europe and the UK, which have been taken down by index selling. Prices of all stocks are proving highly volatile at present, however. We suspect domestic European cyclical stocks may stay under a cloud for a little longer, and are likely to remain volatile over the coming months.

Disclaimer:
Sanlam FOUR is a limited liability company incorporated in England & Wales with registered number 5809399 and having its registered office at 1 Ely Place, London EC1N 6RY. Sanlam FOUR is authorized and regulated by the Financial Conduct Authority.
Participation in this Fund is a medium to long-term investment. The value of this portfolio is subject to fluctuation and past performance is not necessarily a guide to its future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. All terms exclude costs. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available from the manager. The Fund is a sub-fund of the Sanlam Universal Funds plc, an open-ended umbrella type investment company, with segregated liability between its sub-funds, authorised by the Central Bank of Ireland, as an undertaking for collective investment in transferable securities under the European Communities (UCITS) Regulation, 2003 as amended (the Regulations). It is managed by Sanlam Asset Management (Ireland) Limited, Beech House, Beech Hill Road, Dublin 4, Ireland, Tel + 353 1 205 3510, Fax + 353 1 205 3521 which is authorised by the Central Bank of Ireland, as a UCITS IV Management Company and an Alternative Investment Fund Manager, and is licensed as a Financial Service Provider in terms of Section 8 of the South African FAIS Act of 2002. SAMI has appointed Sanlam FOUR Investments UK Ltd as Investment Manager to the Sanlam FOUR Global Equity Fund. The Sanlam Universal Funds Plc full prospectus, the Fund supplement, and the KIID is available free of charge from the Manager or at www.sanlam.ie. This is neither an offer to sell, nor a solicitation to buy any securities in any fund managed by us. Any offering is made only pursuant to the relevant offering document, together with the current financial statements of the relevant fund, and the relevant subscription application forms, all of which must be read in their entirety together with the Sanlam Universal Funds plc prospectus, Fund supplement and the KIID. No offer to purchase securities will be made or accepted prior to receipt by the offeree of these documents, and the completion of all appropriate documentation. Past performance of a fund is no guarantee as to its performance in the future. Independent Financial advice, should be sought as not all investments are suitable for all investors. Collective Investment Schemes (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. Collective investment schemes are traded at ruling prices and can engage in borrowing and script lending, a schedule of fees and charges and maximum commission is available on request from the manager, no guarantee can be given in respect to the capital or return on the portfolio. All potential risks are disclosed in the supplement, Details of annualised figures are included in the Prospectus documents Collective Fluctuations or movements in exchange rates may cause the value of underlying investments to go up or down. The fund price is calculated on a net asset value basis, which is the total value of all assets in the portfolio including any income and expense accruals. Trail commission and incentives may be paid and are for the account of the manager. Performance figures quoted are from Morningstar and are shown net of fees. Performance figures for periods longer than 12 months are annualized.

Sanlam Asset Management is a registered business name of Sanlam Asset Management (Ireland) Limited. This is a Section 65 approved fund under the Collective Investment Schemes Control Act 45, 2002 (CISCA). Sanlam Collective Investments (RF) (Pty) Ltd is the South African Representative Office for this fund. Please note the TER is currently calculated on a 12month rolling basis, however, Sanlam FOUR is in the process of aligning the TER calculation method with the ASISA Standard.
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The fees on the Sanlam FOUR Global Equity Fund A USD Acc is 0.75% p.a. and the TER is 0.99%. The fees on the Sanlam FOUR Stable Global Equity Fund A USD Acc is 0.75% and the TER is 1.01%.

Past performance is not a guide to future performance. Annualized returns are period returns re scaled to a period of 1 year. Performance is net of fees. Fees were previously 1.0% prior to 31st August 2012. The market value of, and the income derived from, the shares of the Fund may fluctuate in accordance with: the values of the investments held by the Fund and other market conditions. Investors may not get back the full value of their investment and past performance is not
necessarily a guide to future performance. There can be no guarantee that the investment objectives of the Fund will be met. There will be times when the Fund’s investment performance will be quite unlike that of any stock market index, which may or may not be to the advantage of the Fund. This report does not constitute an offer, invitation or solicitation. The information and opinions contained in this report are subject to change without notice. This report has been issued and approved by Sanlam FOUR. Please note that the fund performance is from 12 noon to 12 noon, whilst index performance is close of business to close of business.