Market Outlook Report – July 2019

Market Overview

​July 2019 

UK equities see first inflows for two years

Retail investors have turned positive on UK shares for the first time in more than two years, new figures show.

UK-focused funds were the best-selling by region in May, with net sales of £532 million, according to the Investment Association. It is the first time since April 2017 that UK equity funds enjoyed net inflows.

Relevance / Impact 

Pound slumps as ministers move towards no-deal Brexit

Sterling fell to its lowest level in more than two years and bond yields tumbled as investors took flight after ministers talked up the chances of a no-deal Brexit.

In the five days since Boris Johnson became prime minister, the pound has been the worst performing leading currency in the world. Investors have been rattled by Mr Johnson’s appointment and they lack faith in his ability to renegotiate the withdrawal agreement.

The pound, which has recently dropped to its lowest level in 51 months, has fallen substantially since the EU referendum in June 2016, when it was trading at $1.50.  It has shed more than 2 per cent against the dollar this month as the likelihood of Mr Johnson becoming prime minister grew.

Last week’s quarterly inflation report from the Bank of England was the last to be published before October 31.  As expected, it left monetary policy on hold, with Bank rate at 0.75% and no change in the amount of quantitative easing outstanding.

Relevance / Impact 

Federal Reserve rate cut fails to win over Wall Street

The US Federal Reserve cut interest rates for the first time since the financial crisis last night, but its chairman quashed hopes of a series of reductions, sending stock markets down.  The central bank trimmed its base rate by 25 basis points, to a range of 2 per cent to 2.25 per cent, in a widely expected decision that was supported by eight members of its policy committee, but was rejected by two.

Relevance / Impact 

Neil Woodford’s stricken fund to stay frozen until December

The crisis engulfing Neil Woodford has deepened after it was revealed that his main investment fund was likely to remain frozen until early December and the investment trust that bears his name disclosed that it was considering whether to sack him as its manager.

Link Fund Solutions Limited, the Authorised Corporate Director of the LF Woodford Equity Income Fund has formally reviewed the suspension and announced that it remains in the best interests of investors for the suspension to continue and that the suspension of dealing is likely to last until early December, trapping hundreds of thousands of investors for most of the rest of the year.

Link’s latest announcement came just hours after Woodford Patient Capital, the listed investment trust, said that it was holding talks with fund management firms that had approached it about replacing Mr Woodford as the manager of its assets.

Meanwhile, the International Stock Exchange in Guernsey has sought to distance itself from Neil Woodford by pushing out three of his investments in a move that has left his troubled Equity Income Fund in breach of rules over unlisted shares.

Relevance / Impact

Why investors are going for gold

In July, the price of gold broke the $1,400 an ounce mark for the first time since 2013.

Relevance / Impact 

Scottish Mortgage Investment Trust

The Sunday Times highlighted the this 110-year-old investment trust last month.  This is a long-term core holding within our model investment portfolios.

Scottish Mortgage Investment Trust, the only investment trust in the FTSE 100 index of British blue-chip shares, favours global equities, with North American companies accounting for more than half of its £8bn assets.  It looks for businesses with long-term growth potential.

Top holdings include Amazon (10.2%) and its US compatriot Netflix (3.2%), and China’s Tencent Holdings (6.9%).  The top 10 holdings also include Ferrari and French luxury goods group Kering, which is home to brands such as Gucci.

Relevance / Impact 

This article is in the opinion of Reeves Independent financial advisers only and is not intended as advice and no investment decisions. The information in this blog or any response to comments should not be regarded as final advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at ​June 2019.