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MARK OF DISTINCTION

Trust managers severely tested by political uncertainty and a bounce in resources are finding the UK is a stockpicker’s market and those with a distinctive investment style should ride out volatility and generate long-term outperformance

Fund selector UK equity investment trusts

The past 12 months has been a volatile period for investors in many parts of the world but, here in the UK, we have suffered more than most. Panic at the start of 2016 about a renewed slowdown in China soon abated, allowing the development of a recovery in commodity stocks, but it was politics that dominated the rest of the year as first the EU referendum and then the US election sideswiped investors.

The mining sector has been out of favour for many years now, mainly as a result of slowing Chinese demand. Stories of a weakening of the Chinese economy took hold early in 2016 but this nervousness proved to be short-lived.

Miners started to bounce off lows but the resources sectors were further supported by a resurgent oil price on the back of a new Opec agreement. This was bad news for many UK fund managers who had little or no exposure to this part of the market.

The Brexit vote had a significant impact on the performance of UK-focused trusts last year. The market was caught off guard, most discounts widened as investors reasoned that this was bad news for the UK economy and some funds are still trading on much wider discounts than they were before the vote.

Election effect

Fears over the impact of Brexit on UK growth and rising inflation – as weak sterling feeds through to consumer prices – held back the share prices of domestically focused companies.

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