HL SELECT UK GROWTH SHARES
HL SELECT UK INCOME SHARES
Election? What Election?
Managers' thoughts
HL SELECT UK GROWTH SHARES
HL SELECT UK INCOME SHARES
Managers' thoughts
Steve Clayton - Fund Manager
20 June 2017
As I write one week on from the election, have any clear patterns emerged in the market to affect the HL Select Funds? As a whole, the market fell by half a percent, with little difference between the performance of big, medium and small companies.
The markets closed on June 8th, unaware that the UK was heading for a hung parliament. Since then, amongst the major sectors, the only stand-out moves are a fall in mining shares of over 5% and a dip of almost 2% in bank stocks. The oil, pharmaceutical and tobacco sectors are little moved.
The mining movement was nothing to do with the UK economy, these companies have minimal activities here. Rather, that dip was driven by falls in global prices for iron and other commodities.
The banking sector move on the day of the result was interesting, with international banks like HSBC finding favour, whilst investors rushed to sell UK-centric names like Lloyds and RBS. Since then, we have had a rise in US interest rates and signs that the Bank of England may wish to follow suit before too long. Those developments, rather than the election are likely to have been the biggest influence.
Retail shares were weak on the day and have been weak since, but much of this is due to a profit warning from DFS Furniture, which talked of a pronounced weakening of consumer activity in recent weeks. Anyone with a long market memory will know only too well that if the economy catches a cold, DFS will struggle too.
Added to this, Amazon’s announcement on Friday that it will buy Whole Foods, the upmarket supermarket, sent further ripples through the sector. With no traditional retail shares in the portfolio, we’re not too concerned about a slow down on the High Street or Amazon’s onslaught.
Beverage stocks have held up well, and whilst many will have felt the need for a steadying draught on seeing the election result, Diageo, whose size far outweighs all the other UK beverage names, is so global in nature that it will really not have noticed any benefit.
Sterling dropped a couple of percent the moment the exit poll was revealed. Since then it has moved little. By now, you may have noticed that we’re struggling to make much of a story out of what political events mean for the market. And that perhaps is the real story.
The reason the markets have not made big moves as the electoral sands have shifted is that politicians’ ability to impact on businesses is not that great. Sure, they can tax and levy stuff, but only to a degree. Companies will up sticks and leave if they feel unfairly taxed. Businesses are run by people, and if politics throws tacks in their path, the ingenuity and drive of all those people will seek to pick a way through the hazards.
Maybe too, the market is also recognising that radical changes are not made by minority Governments, for they lack the power to go against the consensus. No matter how much Prime Minister May wishes to change things, she can only go as far as she can carry other parties along with her.
Within the HL Income Shares portfolio, we have roughly as many risers as fallers over the five days. Our two REITs, Tritax Big Box, and Primary Health Properties are both pleasantly higher, but not enough for you to start bringing your retirement date forward just yet. Sage and Paypoint have also made good progress in recent days, and we struggle to find an electoral angle to this. At the dullards’ end of the portfolio, Lloyds is a little weaker post-election and BCA Marketplace has had a knock approaching 5%. Overall, we see little impact on the portfolio as a result of the hung parliament.
Within the UK Shares portfolio we’ve seen larger moves. Burford Capital our litigation financier released positive news on the Petersen claim, their biggest case and then fell over 10%. They sold a share of the law suit to another investor, at an increased valuation, but the accompanying comments rather suggest that a settlement is not going to happen any time soon. That’s all part of the territory in the law, but we think that so large is the potential payout that is theoretically possible from this case, some investors looking for a quick return may have lost patience. We may add to our position , if the shares weaken further.
Beyond that, Auto Trader was bashed by a story suggesting Amazon might launch a UK car-selling service and GB Group saw profit taking after a strong run. UK Shares risers included Sage Group and Domino’s Pizza, and a new holding, which we have not revealed yet, because we have been busily dealing in it. If the rise is sustained, we will probably leave the position where it is and provide more details in an upcoming blog.
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