Quarterly Investment 


First Quarter 2017

As At 31st March 2017

The first quarter of 2017 has shown continued strength across all asset classes, and the gradual ‘grind’ higher is in sharp contrast to what we saw this time last year, when investors sold equity markets in particular, as the rout in commodity prices continued.  Investors were also then concerned about a slowing China and the ramifications that had for its neighbours and for the global economy. However, both these issues have since stabilised. Volatility has fallen sharply in most markets.

Clearly what we know now, that we didn’t know a year ago, is that the UK would vote to leave the EU and that Trump would become the 45th President of the USA. Both these events have not derailed markets in a way that we, and others, might have anticipated. Selectively we have seen both the positive and negative effects of these votes start to hit certain stocks, sectors and assets, but in general, synchronised global growth has led to continued confidence in most markets.

"Investors have been attracted back to Emerging Markets which exhibit robust economic growth, less political risk and more independence from dollar-denominated debt"

The weakness of Sterling since the UK voted to leave the European Union has made UK based companies more appealing acquisition targets to overseas buyers. Kraft made an audacious offer for Unilever in February which was swiftly rebuffed and then withdrawn. Kraft’s reputation had been damaged since its takeover of Cadbury in 2010, when promises to keep UK factories open were swiftly broken.  The collapse of the Kraft/ Unilever deal led to a sigh of relief, from not only employees but also from politicians, wary of how powerless they were to respond to such an advance. Unilever swiftly announced a strategic review of its businesses, and the shares still remain nearly 20% up so far this year.

Overseas markets have also performed well. Investors have been attracted back to Emerging Markets which exhibit robust economic growth, less political risk and more independence from dollar-denominated debt. European markets remain buoyed by continued loose liquidity. The US has also performed well as the Trump trade has not significantly faded. The promise of corporate tax cuts is seen as a powerful boost to earnings in the States. Protectionist measures, promised before the November 2016 election, have not yet been articulated fully and investors remain confident that global trade will continue to grow.



Fixed income markets have been surprisingly strong this quarter, despite slowly rising commodity prices promising higher inflation in months to come – particularly in the UK where weaker Sterling compounds these effects. UK Central Bank Governor, Mark Carney, has made it clear that the Monetary Policy Committee will not act on ‘imported’ inflation. Where we may see pressure on the Bank of England is if wages start to rise – however this still seems some way off, and real wage increases are currently negative. This does not bode well for the consumer, not for traditional consumer stocks such as Next and Marks and Spencer which have reported falling like-for-like sales in recent periods.

In terms of portfolio positioning, we recognise that equities have been selectively strong; however, we also acknowledge that their earnings yield is attractive against fixed income yields. Where we think investors have been unduly harsh on companies – particularly those with UK exposure – we have bought more. Additionally, we have looked at companies overseas which exhibit characteristics we like – strong business model, secular growth trends and resilience through the cycle.

We have had a good results season, and in our meetings with management we have continued to press them on how they will continue to improve against the challenging environment:

  • How are you dealing with increased cost of goods, and inflation, and can you pass these on?
  • How do you continue to strengthen the barriers to entry to protect the margins of your products and services?
  • How are you positioning for Brexit, if at all?
  • How are labour costs and availability affecting you?
  • Where do you see opportunities and risks in emerging markets, sectors and trends?
  • Is the regulatory environment changing for you?
  • Are you able to ‘ride the wave’ and benefit from your position, or are costs increasing?

We remain optimistic on the year ahead, while recognising that there are risks, political and otherwise, across the globe, which could lead to increased volatility. We also believe that our active approach of looking for reasonably valued stocks, with strong balance sheets and cash conversion, should continue to deliver for our clients’ portfolios.

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.


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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