During the three month period to the end of August, Sterling fell sharply following the surprise ‘Leave’ result in the UK’s European Union referendum. As a result, for the UK based investor, all major asset classes performed strongly.
Generally, UK listed companies with significant overseas earnings made good gains and this enabled the FTSE All-Share Index to return 9.0% over the period. The collapse in Sterling meant overseas holdings became relatively more valuable and the FTSE World Ex UK Index returned 15.8% in sterling terms. To give a scale to the weakness of Sterling, the same index returned just 3.0% in local currency terms.
Japanese equities performed poorly in local currency terms (MSCI Japan Index, -2.8%), but a flow of funds into the Japanese Yen, on so called ‘safe haven’ buying translated this loss into a 15.9% gain for the UK based investor. Currency moves against Sterling observed during the quarter have been extraordinary.
Demand for gilts was strong and the FTSE Gilts All Stocks Index returned 10.6%, significantly outperforming more risky high yield corporate debt which returned just 5.2%. If an investor bought the 10 year gilt at the end of the period and held it to maturity the yield on their investment will be 0.64% per annum.
The Brent crude oil price fell 5.3% to US$47.0 per barrel during the quarter, as inventories remained high and evidence emerged that some US onshore producers were looking to increase production following the bounce in the oil price from the January lows.
The gold price benefited from the demand for ‘safe haven’ assets, rising 7.7% to $1309/oz by the end of the three month period. This translated into a 19% gain in Sterling terms.