Growth Portfolio: markets move on after Brexit jolt

The last time the hypothetical £100,000 growth portfolio was reviewed, three months ago, markets were beginning to recover their composure after the UK's surprise vote to leave the EU.

Since then, markets have continued to rise, pushing the FTSE All-Share index up by 6.6 per cent to the start of October. During this time the portfolio has chalked up a return of more than 5 per cent.

Not all of its holdings benefited from the rally, partly due to their diversity. Manager Mick Gilligan, head of research at Killik & Co, likes to have some holdings that move in different directions as 'insurance policies'.

To view the growth portfolio's holdings and trading chronology, click here.

WOODFORD GAINS AN EDGE

Among the funds hardest hit by the Brexit vote at the time of the previous review was one of the portfolio's largest holdings, Axa Framlington UK Select Opportunities. This time it is one of the best performers, having bounced back by more than 8 per cent.

growth-portfolio-performance-octoberGilligan says the fund is relatively consumer-focused, and data that has emerged since the vote has shown that retail sales have not been as badly affected as some had expected.

He adds: 'The fund's biggest holding is the packaging company RPC Group. It is a classic example of a company whose share price has benefited from the relief rally.

'On the industrial side, its holding in Ashtead Group, which hires out plant mainly in the US, has benefited from the fall in the pound following the Brexit vote.'

The portfolio's other two UK holdings, Majedie UK Income and CF Woodford Equity Income, which together account for nearly 30 per cent of the portfolio, have risen in line with the FTSE All-Share index.

Woodford's fund has gained an edge, thanks to a couple of its healthcare biotech holdings having risen strongly.

Unfortunately, the portfolio's two top performers over the quarter, City of London Emerging World and the HSBC MSCI Japan ETF, both up more than 10 per cent, make up less than 5 per cent of the total portfolio.

Gilligan says recent support for emerging markets from institutional investors has been the result of attractive valuations and positive indicators from these economies.

He adds: 'Many investors have been underweight emerging markets, but they have now started reducing these underweight positions and rebuilding their holdings.'

HEDGE FUNDS

The Japanese stock market has also been performing strongly recently, which Gilligan attributes to improving corporate governance and positive announcements by the Bank of Japan (BoJ).

Foreign investors are finding the Japanese market attractive, thanks to low share prices, stable government and the limited downside risk, as a result of the BoJ's continued buying of equities. Sterling's fall against the yen has also benefited UK investors.

The portfolio's two negative holdings in the quarter were Odey Swan and BH Macro. Odey Swan employs a hedge fund approach using long and short strategies to back the views of manager Crispin Odey.

growth-portfolio-constituents-october

Gilligan says it has lost ground recently because Odey has been betting on equity markets falling, but this has not paid off. In addition, his biggest short position has been in raw materials, but mining stocks have been rising.

Nevertheless, Gilligan plans to continue to hold the fund as a hedge. BH Macro is another hedge fund that focuses on the global fixed-income and foreign exchange markets. The fund is finding progress difficult, while its high fees are eroding its value, but Gilligan says these may be reduced.

He notes that various indicators show markets are not overheating, and does not expect a market correction ahead of the US election.

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