THE UK stock market has performed very strongly since the EU referendum, though it is a “laggard” compared to the return UK investors have received from overseas markets according to Hargreaves Lansdown.
This is because because weaker sterling has been one of the key drivers of the Footsie, and that currency boost is even more powerful for overseas markets, when returns are converted back into pounds and pence.
This currency effect is also reflected in the performance of the different strata of the UK stock market, with the big international blue chips of the FTSE 100 outperforming the more domestic midcaps.
However the FTSE Small Cap index has surprisingly returned more than the FTSE 100. On the face of it this may seem like a sign of the strength of the domestic economy, however the headline small cap index is heavily populated with investment trusts, many of which invest in overseas equities.
Laith Khalaf, senior analyst, Hargreaves Lansdown said: “Stripping out the performance of these trusts leaves the small cap index lagging slightly behind the FTSE 100 since Brexit, still a very strong showing, but worthy of only second place on the podium.”
UK government bonds have continued to eke out “a pretty decent return” for investors, despite legitimate concerns that these bonds are in bubble territory.
The residential property market has been somewhat disappointing against the backdrop of more robust growth in recent years.
Gold has also seen its star rising for UK investors, but this is almost all a function of weaker sterling; in dollar terms gold is trading at roughly the same price it did on referendum day.
“The performance of capital markets over the last year tells us that the financial effects of Brexit are about as predictable as the British weather. Investors should therefore stick to proven means of building up a decent nest egg, by squirrelling away as much as possible, maintaining a diversified portfolio, and using tax shelters to protect profits from the taxman,” Khalaf says.