Equity Income Post Brexit - What Next?
The result of the Brexit referendum has been known
for some days and ‘Project Fear’ is becoming
‘Project Fact’. No matter what one’s view of the
result, this is the new reality.
The purpose of this note is to discusses the likely
economic and market impacts from the perspective
of UK investors with a yield requirement and to provide an insight into how we are
positioning the Sabre Global Value & Income Fund.
In summary:

Selectively long FTSE100

Avoid domestic UK, Europe. Beware UK dividend cuts (Property, Banks,
Retail).

Long Asia - equity dividend yield a great strategy here

US Assets expensive, but avoid significant risk exposure (long or short) to
USD / US Equities for now.
Economics
UK - Significant Slowdown in Economic Activity
This is happening now. Activity slowed in leading up to the referendum, and given
the result is unlikely to re-accelerate any time soon. Businesses and individuals will
inevitably put investment decisions on hold whilst the considerable uncertainties
resolve themselves. Given the depth of the
integration between the UK and the EU single
market, it is a hard to overstate the magnitude of
the task awaiting the UK Government and UK
Business. Brexit is likely to be disruptive to
business for many years. Additionally the UK’s
balance of payments deficit leaves us dependent
on global capital flows and sterling is likely to
show further strain in our view.
Europe – Negative Impact Highly Likely
In economic terms Brexit will impact on already fragile European economies. Further
significant economic, financial and political difficulties wait in Europe, probably the
most pressing of which is the parlous state of the Italian Banking system.
DISCLAIMER: THIS DOCUMENT IS FOR FINANCIAL ADVISERS AND INSTITUTIONAL/PROFESSIONAL
INVESTORS ONLY AND SHOULD NOT BE RELIED UPON BY PRIVATE CLIENTS.
Global Economic Impact - Limited
We would expect the economic impact of Brexit on the
US and Asian economies to be limited. These areas offer
some protection, at least from Brexit related uncertainty.
Companies and Markets
UK

We are happy to selectively own Large Cap (FTSE) global dollar earners.
Recent sterling weakness move should protect profits (and dividends) in GBP.
We hold RDS, GSK, RIO and some precious metal stocks.

Domestically focused assets (Banks, Housebuilders, Retailers) have been hit
hard over the last 10 days, and represent the market’s clearest view of the
likely pain in the UK economy. We avoid exposure completely.

We would envisage potentially significant dividend cuts in UK stocks in the
retail, banking and property sectors.
Europe

A weaker euro will benefit some global stocks,
though UK volumes are likely to be adversely
impacted as the UK economy slows.

There remain significant political, economic and
financial clouds on the near horizon. Where we can
find quality businesses with diversified global
exposure at attractive valuations we will buy,
otherwise avoid. Any crisis or significant market falls may present additional
buying opportunities in such stocks.
Asia

We see stocks in this region as relatively immunised from Brexit impact.
Attractive yields, when backed by decent cash flow, can offer good support
and our research is focused in this area.

China related concerns have impacted valuations in the region which are now
attractive in our view. China is not ‘out of the woods’, significant challenges
remain and direct China exposure is for the brave.

Quality stocks in other Asian economies offer value however. As the fund is
not hamstrung by benchmark weightings, we are able to take significant
DISCLAIMER: THIS DOCUMENT IS FOR FINANCIAL ADVISERS AND INSTITUTIONAL/PROFESSIONAL
INVESTORS ONLY AND SHOULD NOT BE RELIED UPON BY PRIVATE CLIENTS.

overweight positions in the region, and will do so where we find value.
Dividend yield is a winning strategy in Asia and we are confident that our
investment approach is more than competitive and can generate strong value
added in these markets.
US

US assets do not offer value, but have generated attractive returns this year
as relative safe havens in economic and currency terms. We can think of few
events more deserving of a ‘flight to safety’ than the prospect of a Trump
presidency, so USD currency and US Market returns may exhibit apparently
‘perverse’ behaviour in coming months. Our approach to US assets is a safety
first one this year, designed to minimise risk in GBP terms.
Have a great week!
Ross Hollyman
Sabre Fund Managers
RISK FACTORS:
Sabre Global Value & Income Fund (the “Fund”) is an
equity fund. Investors should be willing and able to assume
the risks of equity investing in particular, fluctuations in
market price, adverse issuer or market information and the
fact that equity securities rank below other corporate
securities, including debt securities, in right of payment in the event of issuer
insolvency. The value of the Fund’s portfolio changes daily and can be affected by
changes in currencies, interest rates, general market conditions and other political,
social and economic developments, as well as specific matters relating to the
companies in whose securities the Fund invests. The Fund may hold a relatively
small number of stocks as compared to many other funds. This may make the
Fund’s performance more volatile than would be the case if it had a more diversified
investment portfolio. Changes in the rates of exchange between currencies may
cause the value of investments to go up or down in the reporting currency. In
general, underlying investments denominated in foreign currency are not hedged
back into the reporting currency. Among the factors that may influence currency
values are trade balances, the levels of short-term interest rates, differences in
relative values of similar assets in different currencies, long-term opportunities for
investment and capital appreciation and political developments. Values may also be
affected by developments relating to controls and restrictions on foreign currency
remittance of proceeds of investments in a non-sterling jurisdiction. All investments
risk the loss of capital. No guarantee or representation is made that the Fund will
achieve its investment objective.
DISCLAIMER: THIS DOCUMENT IS FOR FINANCIAL ADVISERS AND INSTITUTIONAL/PROFESSIONAL
INVESTORS ONLY AND SHOULD NOT BE RELIED UPON BY PRIVATE CLIENTS.
The value of investments may go down as well as up and the distributions can also
go down or up and you may not receive back the full value of your initial investment.
The risks outlined here are some of the more specific risks applicable to investment
in the Fund and investors’ attention is drawn to the Prospectus dated 19 November
2015 which provides more information on the types of risk factors investors should
consider. Whilst every effort is made to provide investors with accurate and up to
date information, some of the information may be rendered inaccurate by changes in
applicable laws and regulations. For example, the levels and bases of taxation may
change. No information in this document should be interpreted as investment advice.
If you feel unsure about the suitability of this investment for you, please consult with
a professional financial adviser.
IMPORTANT NOTES
DISCLAIMER: THIS DOCUMENT IS FOR FINANCIAL ADVISERS AND
INSTITUTIONAL/PROFESSIONAL INVESTORS ONLY AND SHOULD NOT BE
RELIED UPON BY PRIVATE CLIENTS.
The Fund is a sub-fund of Gemini Investment Funds plc (the “Company”), an openended umbrella investment company with variable capital and segregated liability
between Funds incorporated with limited liability in Ireland under the Companies
Acts 1963 with registration number 525228. It is authorised in Ireland by the Central
Bank of Ireland as an Undertaking for Collective Investment in Transferable
Securities (“UCITS”). The Company is recognised as a section 264 scheme by the
Financial Conduct Authority in the United Kingdom. The latest version of the
Prospectus and the Key Investor Information documents are available in English and
can be obtained by visiting www.gemini-im.com Any advice provided will be based
on and take into account a majority of product types and not every single equivalent
product within a given product category. As such, any advice we give is restricted (as
opposed to independent) as defined by the Financial Conduct Authority.
Gemini Investment Management Limited is the Distributor for the Sabre Global Value
& Income Fund.
Gemini Investment Management Limited is registered in England & Wales
No.6795280, Longcroft House, 2/8 Victoria Avenue, London, EC2M 4NS, Office tel:
020 3206 1180, Email: [email protected]
Issued by Gemini Investment Management Limited authorised and regulated by the
Financial Conduct Authority. FRN: 503402
DISCLAIMER: THIS DOCUMENT IS FOR FINANCIAL ADVISERS AND INSTITUTIONAL/PROFESSIONAL
INVESTORS ONLY AND SHOULD NOT BE RELIED UPON BY PRIVATE CLIENTS.