FUND MANAGEMENT DIARY Meeting held on 6 June 2017

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1 FUND MANAGEMENT DIARY Meeting held on 6 June 2017 An Economic Power House Needs a United Union The most vital ingredient in any election as has been emphasised throughout time, is that it is the economy stupid. What is important is that the government in power increases the real wealth and distributes the spoils to strengthen the structure of society, while utilising resources equitably to meet ever expanding demands. What has been the hallmark of this election, is the ability of the various political parties to break fiscal rules and combine them with rash promises and giveaways. On Thursday voters must contend with a UK election that has become much less certain of late. A Labour victory or a hung parliament could have unintended consequences, with regards to the union of the United Kingdom and throw a spotlight on the Eurozone s political fragility. The most striking display, was at the so called debate of party leaders. This showed all too clearly the political makeup of these parties, which was christened by many commentators as a coalition of the chaotic. If some of the polls are to be believed they could be looking to form a government, with a striking possibility being a combination of the Labour party and SNP, who are diametrically opposed on both Brexit and Scottish Independence. However, it seems they are both prepared to work together to make Jeremy Corbyn the next Prime minister and conduct negotiations with the EU, which if unsatisfactory to Nicola Sturgeon, she would then be looking to call an independence referendum. While currently the SNP are prepared to support all the tax measures and giveaways, including their own specific spending spree, it is evident that they will effectively be holding the majority of the United Kingdom to ransom. Analysis by Oxford Economics suggests that if the Tories win the economy will stay on the straight and narrow with modest growth and a falling debt burden. In contrast, Labour are looking to boost growth in the short term with a spending spree, which will keep debt at a high level. The assessment is that Conservatives will bring national debt to 81%, while Labour and SNP proposals could amount to over 100% of GDP. The extra spending to include nationalisation of industries, railways, energy firms and the Royal Mail would push up borrowing substantially. This increases interest rates, making it more expensive for the government to finance its debts. The macroeconomic benefits offered by the Conservatives may not offset the opportunities offered by stronger growth from the other parties, but the costs of Brexit negotiations must be fully considered. The consequences of higher taxation

2 and more state intervention offered by Labour; and the effect of their policy incentives may well sap growth. The good news for the next Prime Minister is that the economists at the World Bank expect the UK economy to grow by 1.7% this year, whilst also upgrading the growth of the European Union to 1.5%. These revisions have been driven by expectations of stronger growth in advanced and emerging economies. Overall global growth is firming, contributing to an improvement in confidence. However, the World Bank warned that policy uncertainties surrounding the US fiscal policy and Brexit negotiations posed the biggest risk. Directions on Brexit negotiations will have consequences both for the UK and EU and it was in the best interest of both parties to reach an accord on comprehensive trade deals. In addition, it also warned that government debt dynamics in some countries indicated vulnerability to a credit crunch in the event of a downturn, which would be counterproductive forcing austerity measures if a downturn occurs. George Soros, the billionaire who shorted the Pound prior to Black Wednesday in September 1992, forcing the UK out of the ERM, has warned the EU that they should approach Brexit talks in a constructive manner. He believes that the EU has lost momentum, with outdated treaties transforming the Eurozone into a series of creditor and debtor nations, which is now in an existential crisis. This was the day after Brussels published a paper mapping out a vision of EU integration including proposals for creating a joint budget, whilst Mr Soros warns that the single currency area has become the exact opposite of what was originally intended. The 2008 financial crisis has changed the relationship with creditor countries dictating terms that made it practically impossible for debtor countries to grow out of their debts. Instead of a multispeed Europe they should aim for a multitrack Europe that will allow member states a wider variety of choices. He urged the block to focus on three key areas; dealing with the refugee crisis, Brexit and dealing with the lack of an economic growth strategy. The background to the UK election will undoubtedly make this one of the most important decisions that voters have ever had to make. A successful transition, with the United Kingdom growing its economy and opening its borders to world trade could provide a stimulus to transforming our overall economy and the UK s position in the world. However, should the result lead to a breakup of the Union, this could be the worst of all results, while England is likely to continue to prosper, the outcome for other parts of Britain could be very different. At the end of the day as quoted in last week s Financial Times good economics remains good politics, if evidence tells you something is a bad idea and you ignore it, then expect failure. This country has gone through many trials and tribulations

3 including two world wars and somehow the British people have always found a solution, be it through the ballot box, or going to war for our principles. United we stand but divided we shall certainly fall. P.S. In the last three months we have been subject to three horrendous terrorist incidents and on every occasion the strength of the British people, while having been fully tested has resulted in a strengthening of ties, the creation of heroes, the kindness and fortitude of the people involved with a wonderful response from our police, ambulance and national health services. Strategy Subject to an election result assessment, we continue to believe that a welldiversified portfolio of quality assets provides the best balance between mitigating downside risk and providing opportunities for growth. Specific risk is now in bond markets as the Fed continues to raise rates, combining with a lack of market liquidity, and therefore fixed interest exposure is generally short-dated with inflation protection. We continue to believe that global inflationary risks exist in the medium and longer term due to the $13 trillion injected through various mechanisms following the credit crisis.

4 Income Small sales will be made from the Rathbone Income and Threadneedle UK Equity Income ahead of Thursday s election. These reductions will bring the portfolio s equity allocation back to target levels. The election result may lead to heightened volatility in the short term, especially in the value of the pound. As such, a diversified allocation with both domestic and international equities as well as fixed income and cash is considered an appropriate mix as the latest political chapter unfolds. Asia Pacific 8% UK Equity Income 39% 39% Other 5% Europe Cash / 4% Money 5% Real Value A small sale will be made from the Aviva Investors UK Equity Income fund ahead of Thursday s election. This reduction will bring the portfolio s equity allocation back to target levels. The election result may lead to heightened volatility in the short term, especially in the value of the pound. As such, a diversified allocation with both domestic and international equities as well as fixed income and cash is considered an appropriate mix as the latest political chapter unfolds. USA 6% Asia Pacific 4% UK Equity Income 24% Europe 3% Cash / Money 14% 49%

5 Real Growth Small sales will be made from the Rathbone Income, Liontrust Special Situations and the Henderson European Focus funds ahead of Thursday s election. These reductions will bring the portfolio s equity allocation back to target levels. The election result may lead to heightened volatility in the short term, especially in the value of the pound. As such, a diversified allocation with both domestic and international equities as well as fixed income and cash is considered an appropriate mix as the latest political chapter unfolds. USA 9% Asia Pacific 7% UK Equity Income 21% 37% UK 15% Europe 4% Cash / Money 7% Dynamic Growth A small sale will be made from the Vanguard FTSE U.K. All Share Index fund ahead of Thursday s election. This reduction will bring the portfolio s equity allocation back to target levels. The election result may lead to heightened volatility in the short term, especially in the value of the pound. As such, a diversified allocation with both domestic and international equities as well as fixed income and cash is considered an appropriate mix as the latest political chapter unfolds. USA 11% Asia Pacific 13% 20% UK 41% Cash / Money Emerging 5% Europe 3% 7%

6 Important Information Please note that the contents are based on the author s opinion and are not intended as investment advice. This information is aimed at professional advisers and should not be relied upon by any other persons. Any research is for information only, does not constitute financial advice or necessarily reflect the views of the author and is subject to change. It remains the responsibility of the financial adviser to verify the accuracy of the information and assess whether the fund is suitable and appropriate for their customer. Past performance is not a reliable indicator of future performance. The value of investments and the income derived from them can fall as well as rise and investors may get back less than they invested. Important information about the funds can be found in the Supplementary Information Document and NURS-KII Document which are available on our website or on request. For any information about the Future Money funds please contact the authorised corporate director, Margetts Fund Management Ltd, on , admin@margetts.com or at 1 Sovereign Court, Graham Street, Birmingham B1 3JR. A copy of their Terms of Business which relates to investments into the funds can also be obtained using these contact details. Issued by Future Money Ltd Future Money Limited is authorised and regulated by the Financial Conduct Authority Future Money Ltd The Euston Office One Euston Square 40 Melton Street London NW1 2FD