Trustnet Magazine Issue 48 FEBRUARY 2019 | Page 18

Your portfolio
VALUATIONS OF MARKETS COMPARED
WITH LONG-TERM AVERAGES
CAPE Forward P/E Trailing P/E Price/book Dividend
yield (%)
UK 15
(13) 12
(12) 14
(14) 1.6
(1.9) 4.7
(3.7)
US 30
(25) 16
(15) 20
(18) 3.2
(2.8) 2.1
(2)
Europe
ex UK 19
(16) 13
(13) 15
(16) 1.7
(1.8) 3.5
(3.2)
Japan 23
(24) 12
(14) 12
(17) 1.2
(1.3) 2.4
(1.8)
13
(16) 11
(11) 13
(14) 1.6
(1.8) 2.8
(2.6)
EM
More than 10% more expensive* 0-10% more expensive
More than 10% cheaper 0-10% cheaper
*Compared with 15-year median
Source: Schroders, Thomson Reuters Datastream, MSCI, Robert Shiller. Data is as at 31 January 2019
solutions are found to the political
quagmire that currently exists,” he said.
ever seen. However, this sentiment
Dean Cheeseman and Nick Watson
provides opportunities.”
on Janus Henderson’s multi asset
He adds firms exposed solely to the team are more cautious. They are
UK – consumer-related companies,
neutral on the UK as most managers
financials, leisure and house-building they hold have increased domestic
stocks – suffered further in 2018 and
exposure at the expense of larger caps,
may be poised to bounce back.
which have performed well thanks to
Henry Flockhart, manager of the
sterling weakness.
Aviva UK Listed Equity Unconstrained “Ordinarily, markets look through
fund, agrees with Morton.
political noise and focus on
“UK domestics, like airlines, pubs,
fundamentals, but the enormity of the
housebuilders and banks have the
political deliberations and the range
greatest potential for a relief rally if
of potential outcomes is making any
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[ CONTRARIAN PLAY ]
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form of market consensus impossible.
This lack of consensus means we are
still faced with a range of ‘fat tails’.”
This is the bell-shaped graph of
a normal distribution of possible
outcomes. In this context it means
varying shades of hard Brexit, soft
Brexit, delay, political divides and so on
but, with the addition of two “tails” that
have a low probability but are extremely
unpretty. Think the credit bubble and
pop of 2007 to 2008.
Since that fateful day in June 2016,
Brexit has brought nearly 1,000
days of uncertainty for investors.
Regardless of the outcome, will we
still be talking about the B-word after
the same amount of time has elapsed
from here – at the close of 2021?
Probably not. We hope.
IMPACT OF VARIOUS BREXIT OUTCOMES ON UK ASSETS
Hard Brexit Softest hard
Brexit Soft Brexit “Never-ending
story” No Brexit
Another leg down,
but it’s already very
undervalued on a
long-term basis Small devaluation
but continued
trading relationship
softens blow £ appreciates
though remains
below pre-
referendum
levels Can-kicking
suggests probability
of reaching some
sort of deal rises – £
appreciates 10%+
appreciation
of £
UK
multi-
nationals FX sees them
appreciate FX sees them
appreciate;
uncertainty
disappears and
foreigners re-
engage FX is a headwind,
but major source
of uncertainty is
removed
– foreigners
re-engage FX poses a small
headwind; some
uncertainty
removed but still a
headache FX poses
headwind;
but
uncertainty
and
foreign
investors
come back
UK
domestics Fall as FX makes
multinationals more
attractive and UK
growth deteriorates Fall as FX makes
multinationals
more attractive; UK
growth still poor Relatively more
attractive as FX
appreciates; growth
outlook improves Relatively more
attractive as FX
appreciates Relatively
more
attractive as
FX
appreciates
Sterling
Gilts Lower yields as
a result of lower
growth and longer
term premium Yields edge a little
lower on growth
outlook Interest rate outlook
steepens and term
premium rises Real yields rise but
inflation expectations
fall; term premium
a little higher too
perhaps Real yields
rise but
inflation
expectations
fall; term
premium
a little higher
too
perhaps
Linkers Rising inflation
expectations mean
linkers beat gilts Rising inflation
expectations mean
linkers beat gilts FX causes
inflation
to fall Linkers unlikely to
outperform Linkers take a
tumble as real
yields rise
Source: Rathbones
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