Markets began 2016 in a volatile mood as investors continue to come to terms with a low inflation, low growth environment. Global equities had fallen by around 10% in Sterling terms by the middle of February, before recovering to a positive 2.4% by the end of the quarter. We suspect that much of the volatility was caused by short term trading.
Political developments have been dominated by the UK’s referendum on continued membership of the EU. Debate from the main protagonists on either side has lacked substance, but even those who have tried to impartially assess the impacts of a Brexit have failed to draw clear conclusions due to the number of unknown factors. What has been clear is the weakening of Sterling, which we expect to continue, together with equity volatility, until the vote in June.
We have reduced our exposure to UK mid cap equities and UK commercial property given concerns around the Brexit vote. The proceeds have been allocated to large cap UK equities and corporate bonds.