Fund Management
Diary
Meeting held on 9 May 2017
Double Double Double, Toil and Trouble
The start of Brexit negotiations over a private dinner party at 10 Downing Street, to which EU negotiators
invited themselves, were amicable with the opening positions being set out by the principle negotiators.
Unfortunately this led to a tendentious account with the supposed proceedings being relayed to
Germany’s Frankfurter Allgemeine Zeitung, together with a direct account to Angela Merkel, in which it
was suggested that the British were delusional and living on a different planet. This totally disregarded
normal rules of etiquette with Theresa May stating that she did not recognise the proceedings as set out,
which was unfortunate ‘tittle tattle’ by the Commission representatives. It also had a total disregard for
Article 50, which states that the Union will negotiate and conclude an agreement with the state, setting
out the arrangements for its withdrawal, taking account of the framework for its future relationship with
The Union.
The EU’s starting position is that trade discussions can only start after agreement is struck on the divorce
bill, rights of citizens and border arrangements. Commencing with the divorce bill, it should be noted it
initially started at €30bn, which moved to €60bn and then it was announced that this should be €100bn,
to include additional farm payments to France and Poland together with further ‘continuous obligations’,
such as support for the Ukraine and payments to Turkey for immigration controls, with no account to be
taken of the UK’s EU assets. On EU citizens living in the UK, there is a need for agreement to provide full
rights to UK benefits, applicable to their families and guaranteed for life, subject to The Court of
European Human Rights. This is despite the latter being a UK red line, given the awards to the likes of
Abu Hamza, a known terrorist, to which millions of pounds were paid to him and his family following
court appeals. On borders they went on to interfere with treaties established with Eire and Spain despite
opposition from the Irish government who wish to retain the 1949 common travel area agreement and
citizen rights established with Britain. The UK negotiators, not unnaturally, pointed out that many of
these positions were far-fetched and could not be supported.
Yannis Varoufakis, the former Greek Finance Minister, in a recent article in the Daily Telegraph, warned
that in ‘talks with the EU, the UK would be beaten down in a slow campaign of attrition and eventually
forced into humiliating capitulation’. He is on record for attributing the bubbles in Spain, Ireland and
Greece together with parts of Italy, to the reversal of the huge capital flows going from the EU rich
nations, prior to 2008, which had been designed to provide growth and equilibrium for the Eurozone as a
whole. The German response to the 2008 financial collapse was to impose austerity on the periphery
nations, taking away their life support, while introducing its own constitution balanced budget
amendment! This, remember was in a country with the highest level of net savings in the history of the
world and capitalism since the 11th century. The resulting chaos in the periphery nations has been clear
for all to see.
Theresa May has had little hesitation in taking on the Brussels-Brexit-Bullies, declaring that in view of Mr
Jean Claude Juncker’s remarks, that she will be happy to accommodate him as a ‘bloody difficult woman’
and appealing to the electorate, to ensure that the UK has a negotiating team with the ability to obtain
the best possible deal with the European Union. The electorate certainly showed their response through
FOR INTERMEDIARY USE ONLY – NOT SUITABLE FOR RETAIL CUSTOMERS
the local election polls giving the Conservatives substantial support indicating the possibility that she
would have a 22% lead at the General Election. She made it clear that the EU terms, as set out by the
European Council’s negotiating team are unacceptable and based on Mr Barnier’s opening positions, she
will be seeking;
a) Any settlement to be based on real accountable figures, with chapter and verse.
b) The EU/UK nationals should, after five years, qualify to be given full residency rights and
thereafter should come under the arrangements of the countries in which they live. Any disputes
should go through the arrangements provided by those countries.
c) The EU to set out the framework including trade in accordance with Article 50, so that the future
relationship can be realistically negotiated, in order to achieve a mutually advantageous
settlement.
It should be noted that the Single Market is a high tariff area which is stringently regulated and provides
access to its members and external countries on the basis of charging high fees for the privilege.
However, it has failed to provide the stabilisation and equilibrium as envisaged by the Founding Fathers
and while the EU 27 provide a united stance against the UK, underneath the surface there are numerous
fractures. It is well known that countries such as Ireland, Denmark, Holland and Belgium have the UK as
their major export market and this includes Germany for automobiles and France for agricultural
products, with these elements being keen to do a deal with the UK. On the 22nd May we understand that
the EU’s negotiating position needs to be put to the 27 for agreement and it will be interesting to see the
outcome. However, the major problem facing the Eurozone is that leading economists have predicted
that the next financial crisis could lead to its downfall.
The UK throughout its years of membership, on a per capita basis, has been a major net donor, assisting
many of the new members in finding prosperity as set out by Mr Varoufakis. It is therefore somewhat
surprising that this largesse has been utilised by the European Commission to ramp up the ‘divorce bill’,
which has been more than underlined by Mr Barnier, with his warning of ‘explosive political
consequences’ if EU programmes have to be stopped, because Britain does not meet its liabilities! This
more than illustrated the quandary for Europe and the need for them to reach an appropriate solution,
remembering that Theresa May has committed to remaining a staunch European, in the traditions of
British fair play.
We conclude with welcoming Emmanuel Macron as the new President of the French Republic and
despite his commitment as a Europhile, he has been more than clear that France needs to reunite in
order to accommodate the disaffected supporters of Marine Le Pen and those people who spoilt their
ballot paper or refused to vote. His relationship with Germany will be key and it is therefore somewhat
surprising that Mrs Merkel has rejected his request for looser spending rules and a relaxation of austerity
to accommodate his fiscal reforms.
Finally, the importance of Theresa May having a five year term cannot be overemphasised, as while the
two year time table will take us out of the Eurozone, it is inevitable that transitional arrangements will
have to be set up, whatever the initial outcome of the negotiations. This will be a busy time for all
concerned and it is our belief that in Theresa May and her advisers, we have the team who can deliver
for the whole of the UK and its people.
FOR INTERMEDIARY USE ONLY – NOT SUITABLE FOR RETAIL CUSTOMERS
Strategy
We continue to believe that a well-diversified portfolio of quality assets provides the best balance
between mitigating downside risk and providing opportunities for growth. Specific risk is now in bond
markets as the Fed continues to raise rates, combining with a lack of liquidity, and therefore fixed
interest exposure is generally short-dated with inflation protection. We continue to believe that global
inflationary risks exist in the medium and longer term due to the $13 trillion injected through various
mechanisms following the credit crisis.
Providence
The team are looking closely at the MGTS Ardevora UK Income fund over the coming week with a view to
consider replacing the fund. The performance has continued to be weak and not consistent with the
research previously conducted on the fund. The rest of the UK holdings are performing relatively strongly
which has positively contributed to the overall performance of the fund.
A small sell has been made from the M&G Global Dividend fund to rebalance the equity weighting after
market rises. This is in line with the gradual reduction of the holding.
Asia
Pacific
6%
UK
Equity
Income
41%
Bonds
37%
Other Europe
2%
5%
Cash /
Money
Markets
9%
Select
The team are looking closely at the MGTS Ardevora UK Income fund over the coming week with a view to
consider replacing the fund. The performance has continued to be weak and not consistent with the
research previously conducted on the fund. The rest of the UK holdings are performing relatively strongly
which has positively contributed to the overall performance of the fund.
The Henderson Emerging Markets Opportunities fund has been slightly behind the sector over recent
weeks, however has remained ahead of funds with a similar strategy. The investment team are currently
not concerned about this holding, but will continue to monitor it for further underperformance.
FOR INTERMEDIARY USE ONLY – NOT SUITABLE FOR RETAIL CUSTOMERS
Asia
Pacific
11%
USA
11%
Bonds
18%
UK
Equity
Income
28%
UK
14%
Europe
7%
Cash /
Money
Markets
5%
Emergin
g
Markets
6%
International
Overall the team believe that the portfolio is well positioned. A small sell has been made from the JPM
European Dynamic fund to rebalance the equity weighting after market rises.
Asia Pacific
12%
USA
34%
Cash /
Money
Markets
4%
Emerging
Markets
10%
Europe
18%
UK
15%
Japan
7%
Venture
A small sell has been made from the Stewart Investors Global Emerging Markets fund to rebalance the
equity weighting after market rises. No other changes are expected to be made at present as the
portfolio is invested in line with our themes.
FOR INTERMEDIARY USE ONLY – NOT SUITABLE FOR RETAIL CUSTOMERS
UK
9%
USA
6%
Asia Pacific
35%
Specialist
6%
Other
6%
Europe
5%
Emerging
Markets
28%
Cash /
Money
Markets
5%
FOR INTERMEDIARY USE ONLY – NOT SUITABLE FOR RETAIL CUSTOMERS
Important Information
Please note that the contents are based on the author’s opinion and are not intended as investment
advice. This information is aimed at professional advisers and should not be relied upon by any other
persons.
Any research is for information only, does not constitute financial advice or necessarily reflect the views
of the author and is subject to change.
It remains the responsibility of the financial adviser to verify the accuracy of the information and assess
whether the fund is suitable and appropriate for their customer.
Past performance is not a reliable indicator of future performance. The value of investments and the
income derived from them can fall as well as rise and investors may get back less than they invested.
Important information about the funds can be found in the Supplementary Information Document and
NURS-KII Document which are available on our website or on request.
Issued by Margetts Fund Management Ltd
Margetts Fund Management Limited is authorised and regulated by the Financial Conduct Authority
For any information about the company or for a copy of the company's Terms of Business, please contact
the company on 0121 236 2380 or at 1 Sovereign Court, Graham Street, Birmingham B1 3JR
You can e-mail us at [email protected]
FOR INTERMEDIARY USE ONLY – NOT SUITABLE FOR RETAIL CUSTOMERS