Emerging-market and Asia Pacific equities


The funds proved relatively resilient to the shock ‘Brexit’ decision on 23 June, performing broadly in line with benchmark. The fall in Asian and emerging-market shares seen on 24 June, of around 3.5 per cent in US dollar terms, was deep but not unprecedented for the asset classes.

It is debatable how much impact the UK departing the EU will have on emerging markets and Asia Pacific. A UK recession and a general decline in risk appetite look more likely, while a strengthening US dollar could add to headwinds facing emerging economies. To put this risk in context, the UK accounts for one per cent to four per cent of Asian exports*. The peak exposure to the UK is found in EMEA, with the country Turkey’s second biggest trading partner at eight per cent of exports.

*Source: Bloomberg, 29 June 2016

Potential positioning changes

Our funds are managed on a long-term basis using a process that emphasises high-quality companies with sustainable returns. We will continue to monitor developments closely.  We do not envisage materially altering our investment positioning.

European equities


European Equity (excluding the UK) Fund – sector allocation within the IT and healthcare sectors contributed to more positive relative performance.

European Equity Fund (including the UK) – top contributing sectors were financials, consumer discretionary and materials.  The fund is not exposed to UK, nor the majority of large European banks which performed badly. Defensive holdings in Reed and Compass performed relatively well. In the materials sector, Syngenta performed relatively well as did CHR and Novozymes – both of which are high quality defensive names. Our holdings in the healthcare sector underperformed as a number of small biotech holdings performed poorly.

European Income Fund – financials and telecoms were the main contributors at a sector level. In financials, Danske and Swiss Re performed well. The fund benefited from being exposed to mainly high quality European banks. In the telecoms sector, not holding Telefonica and Telecom Italia shares aided performance as the two telecom groups performed badly. However, consumer staples shares were the main detractor.

Potential positioning changes

We have not made major changes to portfolios in the wake of the 23 June EU referendum vote. Instead, we are looking to add to holdings with business models that we trust and with management teams possessing the ability to lead the business through a volatile political and economic environment. The slump in share prices on 24 June brought valuations to more reasonable levels from an historical perspective.

Our main fear is that the European Commission makes an example of the UK to try and deter other countries leaving the bloc. While we expect euro-zone growth to be slightly lower in 2016 than was the case before 23 June, we still expect output to expand. We maintain a positive view on 2017 earnings’ growth prospects.

Global convertibles


The convertible bond market reacted to the Brexit vote in an orderly fashion compared with other shocks such as in 2008-9 and 2011, with little sign of forced convertibles selling. The major initial price impact came from lower share prices and wider higher-yield credit spreads. As prices fell, there was evidence of buying shares on the dip. Also, there were signs of more yield-focused demand with purchases of investment-grade bonds by the European Central Bank and for high-grade credit, so convertibles with yield can offer value.

Around four per cent of our convertibles portfolios were held in UK issuers on 24 June, versus a six per cent benchmark weighting. Some small ‘opportunistic’ positions in UK real estate developers hurt performance as sentiment turned against the sector. That said, Derwent, British Land, and Helical Bar all have low gearing and limited exposure to the financial sector, though this is focused in London. We held these shares given that they now trade close to their bond floor and possess credit that is generally short-dated while the companies have low levels of leverage.

Portfolios headed into 24 June with an overweight in Europe, but not one that was assuming a Remain vote. Structurally, the names we held in Europe seemed to offer value and tended to be in defensive businesses such as telecoms and German real estate. 

Potential positioning changes

We decided not to make sweeping changes to the portfolios. Two telecom names in particular, Telecom Italia and KPN, are particularly sensitive to equity moves and came close to our ‘sell’ price limit. But given the sharp price falls in these more defensive companies with limited UK exposure, we kept both positions.

Finally, there is limited portfolio exposure to non-UK issuers with significant revenues and earnings denominated in sterling but translated to another currency. The US is a major component of portfolio exposures and has held up relatively well to events.

As we await the responses from governments in the UK and on the continent to the referendum vote, we will not move aggressively to add more risk to the portfolio.

Important Information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (“Aviva Investors”) as at 29 June 2016. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.  Past performance is not a guide to the future.

The content of this document does not purport to be representational or provide warranties above and beyond those contained in the Prospectus and subscription documentation of the Fund.  The Prospectus and the subscription document contain the full terms, conditions, representations and warranties in respect of the Fund.  Nothing in this document shall be construed as forming any part of those terms, conditions, representations or warranties. The underlying holdings of the fund should be considered in order to establish an appropriate minimum holding period.

The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.

Portfolio holdings are subject to change at any time without notice and information about specific securities should not be construed as a recommendation to buy or sell any securities.

Aviva Investors European Equity Fund, Aviva Investors European Equity Income Fund, Aviva Investors Global Convertible Fund, Aviva Investors Global Convertibles Absolute Return Fund are sub-funds of Aviva Investors SICAV I, an open-ended investment company incorporated as a Société d'Investissement à Capital Variable in Luxembourg. It is authorised by the Commission de Surveillance du Secteur Financier (CSSF) and qualifies as an Undertaking for Collective Investment in Transferable Securities (UCITS) under Part I of the law of 17 December 2010 relating to undertakings for collective investment. The Management Company is Aviva Investors Luxembourg S.A. The Investment Manager is Aviva Investors Global Services Limited, regulated and authorised by the Financial Conduct Authority.

The Prospectus and Key Investor Information Document (KIID), are available, together with the annual and semi-annual reports and financial statements of the SICAV, free of charge from Aviva Investors Luxembourg S.A., 2 rue du Fort Bourbon 1st Floor.L-1249 Luxembourg, Grand Duchy of Luxembourg R.C.S. Luxembourg B25708, from the investment manager , Aviva Investors Global Services Limited at www.avivainvestors.com, St. Helen’s, 1 Undershaft, London EC3P 3DQ or from the relevant offices below.

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The Prospectus, the KIIDs, the Articles of Incorporation as well as the Annual and Semi-Annual Reports are available free of charge in Austria from the Raiffeisen Bank International AG, Am Stadtpark 9, 1030 Vienna which is the appointed paying agent within the meaning of § 34 InvFG and in Switzerland, from the Representative and Paying Agent BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland.  In Spain, copies of the Prospectus and KIID together with the Report and Accounts are available free of charge from the offices of distributors in Spain. The SICAV is authorised by the CNMV with registration number 7.

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Issued by Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: St. Helen’s, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority and a member of the Investment Association. Contact us at Aviva Investors Global Services Limited, St. Helen’s, 1 Undershaft, London EC3P 3DQ. Telephone calls to Aviva Investors may be recorded for training or monitoring purposes.