Scotland 2.

10th September 2014

Ian Copelin, Investment Director, my wealth comments “As the Scottish Independence Referendum draws closer, we have had a number of clients becoming increasingly concerned with the referendum’s outcome on their investments.

Risk management is just as important to me as investment performance and returns, and as such, client portfolios are already well diversified between asset classes (equities, bonds and cash); geographically (UK, US, Europe, Japan, Asia and Emerging Markets); and on a sector basis (for example, mining, pharmaceuticals, banks, etc), so the impact of a surprise ‘Yes’ vote should be limited.

Whilst the opinion polls have resulted in some recent market volatility (please see my note titled ‘Scotland’ on 8 September 2014), the odds at the bookmakers and on-line spread betting companies suggest the ‘No’ campaign will be the victor (albeit by a tiny margin), our UK Fund Manager, Peter Quayle, has taken advantage of recent weakness and increased clients’ exposure to Lloyds Bank and Rio Tinto.

Peter points out that:  “Scotland’s vote for independence is next week, and markets have been hesitant given the uncertainty of the outcome.  Despite this, we have had some great updates from UK companies this week:  sales at Whitbread’s Costa Coffee continued to grow strongly while occupancy at its Premier Inn division reached an all-time high;  Primark (owned by Associated British Foods) is on schedule to open its first US store as existing sales continue to surge; and Kingfisher (owner of B&Q) announced that its UK retail profit improved markedly.  Whatever the outcome of the vote, it should be remembered we invest in companies and not politicians.”

With regard to our fixed interest exposure, our Income Analyst, Ciaren McShane, believes that, “whilst Fixed Interest has performed strongly as an asset class in 2014, we have recently seen an increase in volatility due to geopolitical risk and the Scottish referendum.  A Scottish ‘Yes’ vote may only have a short term knee-jerk negative impact, as ultimately demand for fixed income investments is likely to remain strong thanks to the continued global search for yield in a low interest/low inflation and aging population environment coupled with the fact that Scotland does not represent a significant percentage of the UK economy.”

Following a speech yesterday by Mark Carney, the Governor of the Bank of England, at the Trades Union Congress (TUC) conference in Liverpool, the market is now expecting a 0.25% base rate rise next Spring.  During the conference Mark Carney reiterated that: “the precise timing of the first rate rise is much less important than our expectation that, when rates do begin to rise, those increases are likely to be gradual and limited”.  Our Treasury Analyst, Terry McGivern, notes that “clearly the first rate rise could be influenced by the Scottish vote:  a ‘Yes’ vote may push back a rate rise if UK economic growth/confidence is knocked by the resulting uncertainty.”

Whilst the uncertainty caused by the closeness of the Scottish Independence Referendum can be unsettling, our investment philosophy and process means that we have a risk controlled and disciplined approach to managing our clients’ life savings which ensures that client portfolios are well diversified.”