‘Brexit’: UK equity income & growth considerations

17/05/2016

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​Laura Foll, Co-Manager of the Henderson UK Equity Income & Growth Fund, discusses the upcoming EU referendum and its implications for UK equities. Laura, along with Co-Manager James Henderson, see resilience in diverse ‘global’ holdings and high tech UK-based companies while explaining why they have not repositioned ahead of the vote.

The UK‘s EU referendum is a significant binary risk for UK equities this year, and will particularly affect smaller and medium-sized companies that tend to be more domestically focused than the FTSE 100 in terms of sales and earnings. For the UK Equity Income & Growth Fund, these smaller and medium-sized companies make up approximately two-thirds of the holdings.
 
What gives us some comfort ahead of the vote is that the fund has a diversified list of holdings, approximately 120 in total, some of which should be more insulated in the event of a ‘leave’ vote. Our industrial holdings, for example, which comprise approximately a third of the portfolio, tend to be quite global in their sales exposure – a company like XP Power, for example, which makes power converters is well diversified as it generates the majority of its sales and earnings outside of the UK. Roughly 5% of the fund is also held in university spin-out companies; the share price of these companies is driven by whether their technology will or will not work and whether it is successfully commercialised, not the outcome of the referendum. Therefore, a subset of the portfolio should be relatively more insulated. We are not, however, naïve to the fact that were there to be a leave vote it would have a very real effect on some of the businesses that we own in terms of where manufacturing is located and an immediate impact on the UK economy. Many businesses we meet on a day-to-day basis already have ‘contingency’ plans in place in the event of a leave vote.
 
We have not repositioned the fund ahead of the EU referendum – historically in elections it tends to be the bookmakers that are more accurate than the polls and the bookmakers are putting a circa 70% chance of the UK remaining in the EU. There is also around 10-20% of the population that remain ‘undecided’ in polls – in our view these people tend to vote quite conservatively on the day and stick with the status quo (in this case remaining in the EU). Therefore, we believe that at the current time it is more likely than not the UK will remain in the EU. If this proves correct it would likely cause sterling to strengthen and, with the overhang removed, have a positive effect on UK equities.
 
References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.


Important information

Please read the following important information regarding funds related to this article.

Henderson UK Equity Income & Growth Fund

Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Measures designed to reduce the impact of certain risks may not be available or may be ineffective.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • Shares of small and mid-size companies can be more volatile than shares of larger companies. Market conditions, such as a decrease in market liquidity, may mean that it is not easy to value or to sell a share at a desired time and price, increasing the risk of investment losses.

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Brexit: investment impact

Henderson's investment teams have been providing their views in the months leading up to the referendum. They now provide 'Brexit reactions' outlining how they believe the vote to 'leave' will impact their asset classes and portfolios.





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