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UK Equity Market Returns             Q4          LTM

FTSE 100 (Largecap)                       - 9.6%     - 8.7%

FTSE 250 (Midcap)                        - 13.3%    - 13.3%

FTSE Smallcap (ex Inv. Trusts)    - 12.1%     - 13.8%

Summary

  • UK GDP rebounds in the third quarter
  • Consumers beneift from stronger wage growth
  • Prime Minister survives a Conservative Party rebellion
  • Domestic equites take the brunt of the sell-off

UK GDP rebounds in the third quarter. GDP data is released with a lag so we found out about the Q3 rebound in December. The quarterly growth rate was the highest since 2016 and marked a considerable step up after the weak UK growth reported in the first half of 2018. Manufacturing, services and construction sectors all made a positive contribution despite the ongoing uncertainty surrounding the Brexit negotiations.

Consumers benefit from stronger wage growth according to data from the Office of National Statistics (ONS) which reported the rate of wage growth accelerating through the period. The monthly release beat expectations throughout the quarter, rising to 3.3% in December. This is the highest growth rate in nearly 10 years and is ahead of CPI, the Government’s preferred measure of inflation.

Prime Minister survives a Conservative Party rebellion despite the fact that no Brexit resolution is in sight. Immediately after Teresa May announced she was delaying the “meaningful” vote on her Withdrawal Agreement that she’s negotiated with the EU, a vote of no confidence was triggered by members of her own party. The hard-line Brexiteers within the Conservative Party had been waiting for their moment to launch an attack on the party leader after she negotiated what they see as a Brexit betrayal – a potentially never-ending transition period in which the UK remains rule-takers from the EU. Teresa May comfortably survived the challenge albeit with more than 100 of her own MPs voting for her to go.

Domestic equities take the brunt of the sell-off in the UK amidst global equity rout. Despite UK equity markets faring relatively well compared to other developed equity markets, once again there was a split between how the domestically orientated business and their more global counterparts performed. The domestic businesses are those to be deemed most threatened by an unfavourable Brexit scenario and hence were sold off more aggressively. We believe that there is a lot of inherent value in these domestic UK names and that many of them are significantly oversold.

"Know what you own, and know why you own it." - Peter Lynch