Four lines tell the real story about what has been happening in the UK stockmarkets amid the last year of some quite intensive politics.
Recent performance of the UK Stockmarkets
Following the Brexit vote, we saw an immediate Bang as the FTSE100, our own global index, shot off with some enthusiasm. Why? Some 70-80% of the FTSE 100’s value and turnover is not actually here in the UK and so it’s not measured in Sterling. And when all the mining, resources and oil companies saw their valuations suddenly flattered, it was not as some might have thought due to some brilliant corporate wheeze, but rather that the value of Sterling had fallen dramatically and so the value of their overseas earnings magically rose.
For the FTSE250, often said to better reflect the UK economy, there was merely some Fizz. In fact, this index still has some 50% in overseas investments and so, after an initial stumble, it followed its larger brother – albeit on a less dynamic trajectory.
Then there is the FTSE Fledgling Index. This is not so much an investment index as a UK based investment lottery. So all it would take in this weighted index is one or two star rockets to go off to show some dramatic returns. And indeed a couple have seen their shares rise over 200%. However, the rest of the small businesses are languishing and going nowhere, and since it’s the smallest businesses that have shown some excitement and gone Pop, it’s had no impact on this weighted index.
Possibly of more relevance, and highlighting really what has happened to UK companies since the Brexit vote, is the almost unknown FTSE Local United Kingdom Index. As its name suggests it consists of companies who derive more than 70% of their revenues from the UK. Thus as you can see from the Graph, the index did go up…but only just and merely provided a rather unimpressive Phut versus the others.
However if Sterling reverses its recent downwards trend, then the noisy echoes of the larger indices may fade away. And only then would those focused on UK based values possibly improve. That is if the economy does not go into a down turn first!
So, we can stand by for the next market fireworks – and, as ever, stand well clear. Perhaps it is a wise idea for investors to consider how diversified their portfolios really are. While multi asset portfolios can miss out on some of the stockmarkets’ ‘upside’, they can also leave investors less exposed on the downside too. Quite good to know given that stockmarkets are at near record highs…
Justin Urquhart Stewart
Co Founder and Head of Corporate Development
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