Market Outlook Report – October 2019

Market Overview

October 2019 

The best and worst funds, sectors and shares of 2019

It’s been a bumper year for tech and fashion stocks, but banks and other lenders have not fared so well.

Relevance/ Impact 

How are UK equity income funds performing?

UK equity income funds have become an unloved sector. Since 2016 investors have pulled more than £15 billion out of these funds.

Relevance/ Impact 

Second Woodford fund is frozen

Investors are now trapped in both of Neil Woodford’s open-ended investment vehicles after he resigned as manager of his £253 million Income Focus Fund and it was frozen as a result.

Relevance/ Impact 

FTSE 100 to smash 8,000 in new year, says Citigroup

Clients of Citigroup, the investment bank, were told to plough into UK blue-chip stocks, which it says look “very cheap”. Despite all the goings-on on the markets of late, Citi analysts expect the FTSE 100 to pick up and break through the 8,000-point barrier for the first time by the end of next year.

Relevance/ Impact 

Four reasons why those who bet against Britain may be gambling too far

First, shares in UK companies are comparatively cheap. By our estimate, these are, as a collective, about 20 per cent undervalued compared with equivalent companies in the rest of the world.  This discount has emerged since the European Union referendum in 2016.  Typically, companies are valued on a ratio to their future earnings. Heading into 2016, companies in Britain and the rest of the world averaged about 14 times forecast earnings.  This has fallen to 12 in the UK and has tipped up to 15 for the rest of the world. The last time that such a large gap existed was 1990. Investors can buy up shares in UK companies at a multi-decade discount.

Second, over time the costs and benefits of Brexit will emerge with greater clarity. This will make the present discount of 20 per cent less justifiable. Economic growth has been held up by the Brexit process; the UK economy is 2 per cent to 3 per cent smaller as result of the uncertainty of the past three years.

Third, many of the reasons that international investors want to own stakes in UK assets are not going to be directly affected by Brexit: favourable demographics; an attractive corporate tax environment; a reliable pipeline of intellectual property from the university sector; a flexible labour market; and an independent legal system. At the moment these advantages have become shrouded by the Brexit fog, meaning that fund managers who can choose to invest anywhere in the world have simply reduced their allocation to the UK.  As the UK’s short-term uncertainties & distractions dissipate, these fundamental advantages are likely to re-emerge & be recognised once more.

Finally, the past decade has seen a slowdown in public sector spending. This has acted as a headwind to UK growth.  After last month’s spending review and next month’s budget, this is set to become a growth tailwind. There will be significant parts of the UK economy where ten years of relatively austere conditions will ease.   This will present new economic opportunities.


Rising debt levels ‘risk global crisis’

Britain and other advanced economies are sitting on a corporate debt timebomb that could trigger another global financial crisis, the International Monetary Fund has warned.

Relevance/ Impact 

Sources: Information is included in this article has been obtained from a range of sources including seminars, webinars, industry publications and general media comments. This information was sourced from September 2019. 

Disclaimer: This document represents the opinion of Reeves Independent only and is not intended as advice and no investment decisions should be made solely on the back of this email. Always seek independent financial advice before taking any action. Past performance is not a guide to future performance. All investments carry the risk that you will get back less than you put in.