During the three months to the end of September, the Strategy was essentially flat to marginally in positive territory. This was in-line with the Sterling adjusted performance of emerging market equities generally, given the tailwind of Sterling weakness, which offset a small negative underlying performance, given weak emerging market sentiment, against a backdrop of US Dollar strength and rising US interest rates, which increases the cost of funding for emerging market corporates. Donald Trump’s protectionist rhetoric added to the bearish mood towards emerging market equities, especially those companies sensitive to Chinese exports. The BlackRock Frontiers Investment Trust was again a notable detractor, falling by 3.6% over the quarter. The Trust’s overweight exposure to Argentina continued to weigh on performance, as investors questioned the country’s ability to fund itself given its fiscal and external account balances. The BlackRock World Mining investment trust was another laggard, falling by 4.5%, with US Dollar strength and weakening data out of China weighing on mined commodity prices. The Impax Environmental Markets Investment Trust was the strongest performer in the quarter, returning 7.1%, as environmental investing continued to find favour with investors, especially those managers with a genuine and long-term focus on environmental investing, as opposed to those jumping on the bandwagon and purporting to possess environmental credentials. The performance of the Impax Trust was supported by the closing of the discount to net asset value, at which the Trust has traded for the past decade. The iShares Agribusiness exchange traded fund was another strong performer in the quarter, rising by 4.0%, as investors continued to focus on the strategic attractions of this sub-sector, especially following acquisitions of a number of key former sector constituents. The iShares Global Water exchange traded fund delivered a return of 5.2%, supported by the strength of US equities, which account for over 40% of the fund, together with further developments in water technology stocks.
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.