With the after effects of the Brexit shock continuing to work their way through markets, most recently with the suspension of dealings in the open-ended property funds, this week we look at those areas that appear favourably set despite the near-term turmoil in the UK and Europe.
Clearly, the Brexit shock has impacted markets to a great degree in the near term, driving down sterling and global bond yields.
However, now that markets have had time to digest the outcome, the 'lower for longer' scenario is reinforced with the outlook for growth generally reduced.
In addition, the outlook for the UK and European domestic economies has been downgraded materially, leading to falls in company shares exposed to the economic cycle, especially banks and other domestically oriented investments.
SOME AREAS UNAFFECTED BY BREXIT
In the longer term, the impacts are more nuanced. The consensus is that sterling will continue to weaken and this may have positive impacts on UK exporters, although this might be mitigated by a weaker global economy.
Weaker sterling is positive for all overseas assets for a UK investor and the bulk of the large UK companies are also beneficiaries.
The US economy is largely immune from events in Europe and the outlook for global trade, although even there bond yields have been reaching new lows.
The relative merits of some areas have now come to the fore. Emerging markets amongst international equities, particularly those with a low exposure to global trade, can carry on as before unaffected by Brexit or a slowdown elsewhere.
One of our key themes has been the emerging consumer in Asia and Latin America.
We are concentrating on Latin America and Asia with a focus on domestic companies set to benefit from rising incomes rather than global trade and commodities.
We aim to play this theme more directly now that the headwind has been greatly reduced with a more settled commodity outlook.
REAL ESTATE EXPOSURE
Another area which might be less driven by the dominant macro picture is real estate, obviously outside the UK, where yields remain attractive against a background of falling bond yields.
We have gained our exposure in the past through Japan and Singaporean real estate investment trusts (REITS) as well as the UK.
With the outlook for the UK more clouded, and Singapore and Asia having headwinds from China, we have been thinking more laterally.
Looking for areas of real estate less exposed to these headwinds we happened upon US healthcare REITS where, with a clear growing demand and relatively attractive yield, we can get our real estate exposure and some benefit from the ageing population theme.
It is also worth noting that policy action is inevitable in the current environment. This may change the tone of markets and the relative attractions of different sectors.
Falls in bond yields have to some degree anticipated further interest rate cuts and potentially quantitative easing, but the possibility of action being taken on taxes hasn't been discounted or apparently even discussed outside Japan and more recently in the UK.
At present we are happy with our current 'lower for longer' bias with a defensive mix of equities in developed markets balanced with exposure to our growth themes of emerging consumers and industrial technologies.
If there was a significant unanticipated change of policy we must be alert to the risk that the current strength in bond markets, particularly falls in long-term yields, might reverse.
David Jane is manager of Miton's multi-asset fund range.