The Strategy delivered a solid performance in the three months to the end of September. Asset allocation was a tailwind, since the portfolio maintained a sizable underweight in the UK, one of the weakest major markets in Q3. There was no particular theme behind this underperformance, just what appeared to be a general lack of excitement about UK-listed companies. Energy names were a small bright spot, supported by the ongoing recovery in the underlying commodity. Financials were sluggish, with Barclays being a notable laggard, despite activist interest in the name. Within Utilities, Scottish and Southern profit warned on the back of dry weather, poor renewable conditions and high gas prices (all are transitory factors), while National Grid remained relatively resilient. Telecoms were polarised as BT gained over 8% in total return terms in Q3, but Vodafone came under pressure on the back of dividend concerns and operational headwinds. The US was one of the best performing markets globally, reflecting strength of the country’s economic growth. There were some impressive risers in the quarter – Eli Lilly (+25% in total return terms), Delta Airlines (+18%), HP Inc and Cisco (+15% each), and Financials. Collectively these stocks more than offset falls in Broadcom (in reaction to a surprise acquisition announcement) and Western Digital (the semiconductor industry de-rating on the back of weak pricing and recessionary fears). Performance of European names within the Strategy was well ahead of the main index, with particular strength coming from Pharma Stocks (Novartis and Roche) and Energy (Total and Eni). Emerging markets were also ahead as the Funds held were underweight glamour growth stocks, which were disproportionately hit by trade war rhetoric. On the contrary, Japanese exposure was slightly behind.
On a trade weighted basis Sterling fell a little under 1% over the past three months. The moves in Sterling continue to be driven by the strength or weakness of the US Dollar, as the wide interest rate differential favours America’s currency. As the Brexit clock ticks down towards the exit day in March, we are likely to see further volatility in Sterling no matter the outcome – down towards parity against the Dollar if it is a “hard Brexit” and a strong rally above $1.40 if a benign Brexit agreement is duly struck.