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Our monthly research roundup – sterling rally lifts UK domestics

Kate Marshall, Senior Investment Analyst, looks at what our investment team got up to in October.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

UK politics remained firmly in the spotlight in October.

The EU granted the UK another Brexit extension, despite Boris Johnson promising to leave the EU on Halloween "come what may".

It was also announced British voters will head to the polls once again before the turn of the year. With the prospect of a third general election in just over four years, many voters will be channelling the now-legendary reaction of Brenda from Bristol – "Not another one!"

But what does this all mean for markets?

This article is not personal advice. If unsure, please seek advice. All investments fall and rise in value, so you could get back less than you invest.

Last month, sterling rebounded against most of the world's major currencies, after rallying over summer. The direction of sterling remains sensitive to the risks of a disruptive Brexit, which many economists believe would be damaging to the British economy. Given the diminishing likelihood of a no-deal Brexit, the prospects for the pound looked brighter.

This dampened returns from overseas markets for UK investors. Key markets, such as the US, Europe, Asia and the emerging markets made a loss. So did the FTSE 100, which contains many UK businesses that make a high proportion of their earnings abroad.

On the other hand, sterling's strength benefited UK small and medium-sized companies, which tend to be more domestically focused and sensitive to the health of our own economy than larger firms. It means the FTSE Small Cap and FTSE 250 were two of only a few major stock markets to make a positive return, gaining 0.5% and 1.0%, respectively. Past performance isn't a guide to future returns though and this is over a short time frame.

As a result, a number of our favoured funds with a bias to this part of the market performed well. This includes the likes of Franklin UK Mid Cap, Marlborough UK Micro-Cap Growth and Marlborough Multi Cap Income.

Other UK funds, such as LF Majedie UK Equity and Jupiter Income, also did well with a little help from their tilt towards value-based investing. The managers behind these funds often look for companies that have fallen out of favour. Providing they think these companies still have good prospects, they invest when their share prices are depressed and look lowly-valued, in the belief they'll eventually come good and rise again in future.

Instead, other funds with a more growth-focused approach, such as LF Lindsell Train UK Equity, were weaker after performing exceptionally well for several years.

I touched on the fact 'value' stocks outperformed 'growth' stocks in last month's research roundup. Once again we feel the market's recent performance highlights the importance of maintaining a diversified portfolio. It's difficult to call if or when the value style will dominate markets over a longer period, but maintaining exposure to a range of investment styles means you're less likely to get caught out if a new trend takes hold.

Is value investing in for a U-turn?

Annual percentage growth
Oct 14 -
Oct 15
Oct 15 -
Oct 16
Oct 16 -
Oct 17
Oct 17 -
Oct 18
Oct 18 -
Oct 19
Franklin UK Mid Cap 18.4% -2.4% 28.0% -3.1% 17.6%
Jupiter Income 2.5% 19.5% 8.8% -0.8% 1.5%
LF Lindsell Train UK Equity 17.0% 14.3% 16.8% 2.7% 18.0%
LF Majedie UK Equity 4.3% 14.2% 9.3% -2.6% 2.1%
Marlborough Multi Cap Income 15.8% -3.3% 18.7% -5.3% 7.7%
Marlborough UK Micro-Cap Growth 16.8% 7.0% 41.0% -2.5% 4.0%

Past performance is not a guide to the future. Source: Lipper IM to 31/10/2019

The Lindsell Train UK Equity Fund holds shares in Hargreaves Lansdown plc.

Wealth 50 change

We removed the TM Sanditon European Fund from the Wealth 50 list of our favourite funds last month.

This follows the news that Chris Rice will step down as the fund's manager and Sanditon's funds will transfer to CRUX at the end of November 2019, subject to regulatory approval. At this point Sanditon Asset Management will close down its business and Richard Pease will take over management of the fund. He's a seasoned European equities investor, though he'll use a different investment approach to Rice, and overall we view CRUX as a high-quality European investment house.

In light of these changes, we felt it was prudent to remove the fund from the Wealth 50.

TM Sanditon European – read more about the removal from the Wealth 50

Franklin UK Mid Cap Key Investor Information

Jupiter Income Key Investor Information

LF Lindsell Train UK Equity Key Investor Information

LF Majedie UK Equity Key Investor Information

Marlborough Multi Cap Income Key Investor Information

Marlborough UK Micro-Cap Growth Key Investor Information

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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