Brit-in or Brexit : Hedging in Times of Geopolitical Uncertainty

Transcription

1 + () 8 6 Brit-in or Brexit : Hedging in Times of Geopolitical Uncertainty

2 Disclaimer This document is issued by WisdomTree Europe Ltd ( WTE ) an appointed representative of Mirabella Advisors LLP, which is authorised and regulated by the United Kingdom Financial Conduct Authority ( FCA ). The products discussed in this document are issued by WisdomTree Issuer PLC ( Issuer ), an umbrella investment company with variable capital having segregated liability between its funds organised under the laws of Ireland as a public limited company and authorised by the Central Bank of Ireland ( CBI ). The Issuer is organised as an Undertaking for Collective Investment in Transferable Securities ( UCITS ) under the laws of Ireland and shall issue a separate class of shares ("Shares ) representing each fund. Investors should read the prospectus of the Issuer ( Prospectus ) before investing and should refer to the section of the Prospectus entitled Risk Factors for further details of risks associated with an investment in the Shares. Any decision to invest should be based on the information contained in the Prospectus. This product may not be available or suitable for you. This document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy Shares. This document should not be used as the basis for any investment decision. The price of any Shares may go up or down and an investor may not get back the amount invested. Past performance is not a reliable indicator of future performance. Any historical performance included in this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. The value of the Shares may be affected by exchange rate movements. For United Kingdom Investors: The Fund is a recognised scheme under section 6 of the Financial Services and Markets Act and so the Prospectus may be distributed to investors in the United Kingdom. Copies of all documents are available in the United Kingdom from Within the United Kingdom, this document is only made available to professional clients and eligible counterparties as defined by the FCA. Under no circumstances should this document be forwarded to anyone in the United Kingdom who is not a professional client or eligible counterparty as defined by the FCA. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, where none of the Issuer or the Shares are authorised or registered for distribution and where no prospectus of the Issuer has been filed with any securities commission or regulatory authority. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. Neither the Issuer nor any securities issued by it have been or will be registered under the United States Securities Act of 19 or the Investment Company Act of 19 or qualified under any applicable state securities statutes.

3 Contents What are the polls saying? UK Macro Fundamentals Eurozone Macro Fundamentals Current Investor Sentiment How to hedge using S&L ETPs Positioning and Asset Allocation

4 Brit-in vs Brexit : What does each side stand for? Trade and Economy Immigration Cost Sovereignty Regulation Security Stay Brit-in Access to single market is key for Britain s economy No clarity on what post-brexit trade would look like relies more on the EU for trade than vice-versa Net effect of immigration has been undoubtedly positive Britain needs skilled and unskilled labour that the EU provides Leaving the EU will not stop immigration Britain s net contribution is only 8. billion (after rebates and EU spending) Referendum is proof that UK has not lost sovereignty Important laws and policies are still set by the British government Much of EU regulation makes life easier and safer EU also guarantees equal rights and labour standards Britain is stronger working with the EU in tackling rising political tensions Sharing of intelligence with EU is increasingly important Leave Brexit Britain has the ability to negotiate favourable trade deals without being a part of the EU EU represents a declining trade market for the UK Norway and Switzerland are examples of how UK can still maintain trade outside of EU Migrants put additional pressure on already strained public services and housing Immigration is out of control and Brexit is needed so Britain can regain control of its borders Membership to the EU is expensive with Britain s contribution at 18 billion a year Britain has forfeited its sovereignty and democracy as an EU member UK can retain its influence without being a member EU over-regulation is a burden to UK businesses UK businesses will thrive once freed from unnecessary bureaucratic intervention Open border prevents UK from checking and controlling people Leaving EU is unlikely to weaken diplomatic relations with other countries

5 Neck-and-neck race will hinge on voter turnout 7% 6% % Polls are too close to call! Polling Results since May 1 Stay % Leave % Undecided % 8% 7% 6% Unlocking young votes will be key Voter Participation by age group at previous elections % % % % % % % 1% 1% % May 1 Aug 1 Nov 1 Feb 16 May 16 % Voter Age Group Source: WisdomTree Europe, FT, What UK Thinks, Ipsos Mori. Data as of 1//16

6 Sterling Assets At Risk: when foreign capital stops funding UK s twin deficit Foreign investment into UK sustain sterling UK Capital flows vs trade-weighted sterling 1. Holdings of UK gilts by investor type Amounts outstanding and % foreign held Overseas Holdings (Rest of World) Other current account and Capital flows, % of GDP Trade-weighted Index of British pound trillion Banks and BoE % of total (excl QE) 1 % of total Net Direct Investments Net Portfolio Investment Current Account Balance Net Other Investment 9. GBP TWI (RHS) Source: WisdomTree Europe, Debt Management Office, ONS Q 199 Q1 199 Q 199 Q 199 Q 1997 Q Q 1999 Q Q Q1 Q Q Q 7 Q1 8 Q 9 Q 1 Q 1 Q1 1 Q 1 Q 6

7 Sterling Assets At Risk: when foreign capital stops funding UK s trade deficit UK trade with EU Current account balance UK trade with non-eu Current account balance in GBP bn 1 % og GDP in GBP bn % of GDP as % of GDP (RHS) - CA balance of Services to EU CA balance of exports of Goods to EU as % of GDP (RHS) - CA balance of Services to non-eu CA balance of Goods to non-eu Source: WisdomTree Europe, ONS, Bloomberg Source: WisdomTree Europe, ONS, Bloomberg 7

8 UK households to vote with their pockets? hard earned restoration of income and jobs 1 UK voters, are you ready for uncertainty? Private sector wages and unemployment Real total pay, index Unemployment rate (%) Unemployment rate (RHS) Private sector avg. weekly earnings (excl. bonuses, real) Source: WisdomTree Europe, Bloomberg. 8

9 Eurozone s rebalancing act: structural shift finally contributing to cyclical-led growth 1 US GDP Cumulative contribution (in percentage point) 1 Eurozone GDP Cumulative contribution (in percentage point) Net exports +1.% Stockbuilding 1 1 Investment Household consumption Government consumption 9 9 GDP % Source: WisdomTree Europe, Bloomberg. Data as at 1 March 16 9

10 Eurozone structural recovery: productivity gains are starting to turn jobs market around Eurozone jobs market recovery is years behind the US Cumulative change in employment (in M) since 8 1% but broadening out into FR & IT Unit labour costs relative to Germany US jobs: +M added since 8 % - Eurozone jobs: -M lost since 8 - % -% US (Nonfarm payrolls) Eurozone (ECB HH labour force survey) Source: WisdomTree Europe, Bloomberg. Data as at 1 October % -1% France Italy Portugal Greece Spain -% Source: WisdomTree Europe, Bloomberg. Data as at 1 March 16 Eurozone: approximately years behind the US s structural recovery Broad based rebound depends on faster labour market reform in Italy and France 1

11 SMEs: cheaper credit restores business confidence Bank loans to Eurozone small businesses bank loans <=EUR K, LHS: New business volume (%ch y/y); RHS: interest rate (%) 7 8 Small business recovery broadening out EU Craft and SME Barometer >7 is expansion; <7 is contraction New business volume (%ch y/y) Jun 11 Sep 11 Dec 11 Mar 1 Jun 1 Sep 1 Dec 1 Mar 1 Jun 1 Sep 1 Dec 1 Eurozone (LHS) Portugal Spain Italy Germany France Mar 1 Jun 1 Sep 1 Dec 1 Mar 1 Jun 1 Sep 1 Dec 1 1 Interest rate (%) North Composite South 7 H1 7 H 8 H1 8 H 9 H1 9 H 1 H1 1 H 11 H1 11 H 1 H1 1 H 1 H1 1 H 1 H1 1 H 1 H1 1 H 16 H1 Source: WisdomTree Europe, Bloomberg. Data as at 6 February 16 Source: WisdomTree Europe, Bloomberg. Data as at 6 February 16 11

12 FX markets nervous as investors continue piling into Gold Pressure on Pound and Euro ahead of EU referendum Implied volatility (%) GBPUSD M ATM Option Volatility EURUSD M ATM Option Volatility Gold ETC fund flows (USD Bn per month) Gold Price vs Gold ETC fund flows 1 1 -, 1,8 1,6 1, 1, 1, 8 Gold (USD/t oz.) -1 Gold ETC flows (USD M, m rolling) Gold ETC flows (USD M, m-o-m) (Gold, USD/t oz. RHS) Source: WisdomTree Europe, Bloomberg. Past performance is not indicative of future returns. 1

13 Brexit and market sentiment: Flows of European-domiciled funds Mutual funds* Cumulative flows (EUR bn) UK Equities UK Fixed Income GBP Money Markets Jan 1 Apr 1 Jul 1 Oct 1 Jan 16 Apr 16 Jan 1 Apr 1 Jul 1 Oct 1 Jan 16 Apr 16 Jan 1 Apr 1 Jul 1 Oct 1 Jan 16 Apr 16 ETFs* Cumulative flows (EUR bn) Jan 1 Apr 1 Jul 1 Oct 1 Jan 16 Apr 16-1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 16 Apr 16 Sources of all charts: WisdomTree Europe, Morningstar. Mutual fund flows as of 9 February 16; ETF flows as of 1 March 16. *Excluding funds of funds and feeder funds. Past performance is not indicative of future returns. 1

14 Brexit and market sentiment, pre and post: Grexit is our best guide for risk-off/on positioning % Grexit Fears days pre and post Greece' yes or no vote on Troika bailout terms % % -% -% -6% -8% -1% Major events 1Y Gilts 1Y Bund EURO STOXX FTSE 1-1% Source: WisdomTree Europe, The Daily Telegraph. May: Greek PM rejects bailout, threatens to default 11 June: IMF walks out from bailout talks 6 June: Greek PM announces referendum on bailout terms July: Referendum held: Greeks vote no to bailout terms 7 July: Deadline for bailout terms extended July: Greek Banks reopen 7 July: Troika resumes negotiations 1 August: Greece accepts Troika bailout terms 1

15 Disclaimer This document is issued by WisdomTree Europe Ltd ( WTE ) an appointed representative of Mirabella Advisers LLP, which is authorised and regulated by the United Kingdom Financial Conduct Authority ( FCA ). The products discussed in this document are issued by WisdomTree Issuer PLC ( Issuer ), an umbrella investment company with variable capital having segregated liability between its funds organised under the laws of Ireland as a public limited company and authorised by the Central Bank of Ireland ( CBI ). The Issuer is organised as an Undertaking for Collective Investment in Transferable Securities ( UCITS ) under the laws of Ireland and shall issue a separate class of shares ("Shares ) representing each fund. Investors should read the prospectus of the Issuer ( Prospectus ) before investing and should refer to the section of the Prospectus entitled Risk Factors for further details of risks associated with an investment in the Shares. Any decision to invest should be based on the information contained in the Prospectus. This product may not be available or suitable for you. This document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy Shares. This document should not be used as the basis for any investment decision. The price of any Shares may go up or down and an investor may not get back the amount invested. Past performance is not a reliable indicator of future performance. Any historical performance included in this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. The value of the Shares may be affected by exchange rate movements. For United Kingdom Investors: The Fund is a recognised scheme under section 6 of the Financial Services and Markets Act and so the Prospectus may be distributed to investors in the United Kingdom. Copies of all documents are available in the United Kingdom from Within the United Kingdom, this document is only made available to professional clients and eligible counterparties as defined by the FCA. Under no circumstances should this document be forwarded to anyone in the United Kingdom who is not a professional client or eligible counterparty as defined by the FCA. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, where none of the Issuer or the Shares are authorised or registered for distribution and where no prospectus of the Issuer has been filed with any securities commission or regulatory authority. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. Neither the Issuer nor any securities issued by it have been or will be registered under the United States Securities Act of 19 or the Investment Company Act of 19 or qualified under any applicable state securities statutes. 1