The "Brexit” vote took the market by surprise in June. European indices fell abruptly. The UK index posted gains, driven by the sharp depreciation of the Pound Sterling, and given the bulk of the index is made up of multinational companies with revenues in US Dollars, Euros or other currencies. Long-term rates also fell sharply, with the 10-year German bund yield becoming negative at -0.2%. At sector level, banks, insurers and other asset managers came under pressure. On the other hand, healthcare and basic consumer product multinationals were strong gainers in both relative and absolute terms. The same was true of sectors positively impacted by low long-term rates: property and utilities.

  • We have decided to maintain a defensive bias in our European equity funds. The summer can bring a higher equity market volatility in the light of the negiotiations regarding Brexit, and the uncertainties coupled to the Italian banking sector and the Italian constitutional referendum.
  • In terms of investment styles, we have significantly increased companies with structural growth against cyclicals and financials.
  • We have decided to reduce our exposure to consumer durables & apparel (luxury goods) to reduce consumer cyclicity globalle.
  • We remain neutral on the banking sector. Although the sectors looks appealing when taking into account the various valuation multiples, the sector is still facing regulatory pressure, while margins are decreasing in a low yield environment and earnings are being revised down. Also, the stress test at the end of July can cause additional volatility on the sector. Especially Italian banks look fragile.

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