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Quarterly Investment 

Report

First Quarter 2016

As At 31st March 2016

Much of the gloom hanging over investors initially concerned commodity prices. The fear was that the collapse in oil prices was a symptom of waning global demand and a sign that economic growth was falling to recessionary levels. This would hit profits and share prices across many companies. We feel this fear is misplaced; while we use oil less intensively than before, demand continues to rise at somewhere over one per cent per annum.

Rather, the issue of falling oil prices is simply that supply levels have swamped demand. State petroleum companies and the big listed oil firms went on a spending binge on the back of strong prices from 2010, with the result that production grew well above demand. This bubble burst in 2014 and has been deflating since – private oil companies have cut hundreds of billions of dollars from their spending plans, so supply growth should start to ease on this front.

After their worst start to the year since the financial crisis – with markets down nearly 12% at one point – it seems incredible that global equities ended the quarter up 2.8%, reflecting sterling weakness.

Investors have also been concerned about a slowing China and the ramifications this has for the global economy. China has been overly reliant on capital spending and manufacturing for economic growth in recent years, and the slowdown is part of an inevitable process to rebalance to more domestic spending and services. More recently, actions by the authorities to stimulate the economy have eased concerns about recession, and helped support the turnaround in investor risk appetite we witnessed from mid February. Our investment approach is that we favour well-established, structural growth stories which have exposure to the growing middle class in China and beyond. Often these are UK-listed stocks, as our market benefits from considerable revenue from outside the UK (around 70% for companies in the FTSE 100).

By the time you receive your next quarterly investment report, the outcome of the referendum on ‘Brexit’ will be known. Markets don’t like this uncertainty, and sterling has fallen sharply. This helps many of our holdings as it makes British companies more competitive overseas, though the domestic economy will be slightly weaker as companies delay spending ahead of the vote. Do we change portfolios in anticipation of the result? Telephone polls and betting intentions suggest that a ‘Remain’ vote is more likely; however, we clearly can’t predict the outcome and nor can anyone else. Trying to time market positions in advance is extremely tricky and we stick with our long-term investment strategy and horizon.

While we in the UK might feel nervous about the value of sterling or the local economy, there are plenty of global political and economic influences, both positive and negative, which have the power to affect us.
 

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While we in the UK might feel nervous about the value of sterling or the local economy, there are plenty of global political and economic influences, both positive and negative, which have the power to affect us.

Recent events in Brussels have highlighted the unpredictable and appalling threat from terrorism, and the immigration crisis has yet to be resolved, putting further pressure on European leaders. This political turmoil can also unsettle investors, as might developments in the US Presidential election. Central banks have reacted to these and economic uncertainties by cutting interest rates further, and in the case of the Federal Reserve (Fed), dialling back its expectations of monetary tightening.

Against such a backdrop, volatility is likely to remain a feature of markets that we are going to have to get used to. This makes our investment approach more pertinent than ever – in skittish markets, investments must be seen through a long-term lens. And we wish always to confirm with you that you have sufficient cash resources to ensure that the portfolios you entrust with us do not need to be a first port of call when reserves are required.

We are proud to direct you to our new website at adambank.com, where you will find regular articles, briefings and commentaries written by our team, as well as details of our most recent investment award.

While we in the UK might feel nervous about the value of sterling or the local economy, there are plenty of global political and economic influences, both positive and negative, which have the power to affect us.

Recent events in Brussels have highlighted the unpredictable and appalling threat from terrorism, and the immigration crisis has yet to be resolved, putting further pressure on European leaders. This political turmoil can also unsettle investors, as might developments in the US Presidential election. Central banks have reacted to these and economic uncertainties by cutting interest rates further, and in the case of the Federal Reserve (Fed), dialling back its expectations of monetary tightening.

Against such a backdrop, volatility is likely to remain a feature of markets that we are going to have to get used to. This makes our investment approach more pertinent than ever – in skittish markets, investments must be seen through a long-term lens. And we wish always to confirm with you that you have sufficient cash resources to ensure that the portfolios you entrust with us do not need to be a first port of call when reserves are required.

We are proud to direct you to our new website at adambank.com, where you will find regular articles, briefings and commentaries written by our team, as well as details of our most recent investment award.

Please remember that the value of investments and the income from them may go down as well as up and that you may not get back the amount originally invested. Past performance should not be seen as an indication of future performance.
Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

IMPORTANT INFORMATION

Issued by Adam & Company Investment Management Limited, which is authorised and regulated by the Financial Conduct Authority. Adam & Company Investment Management Limited is registered in Scotland Number 102144. Financial Services Firm Reference Number 141831. Registered Office: 25 St Andrew Square, Edinburgh EH2 1AF.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance.

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