European politics was one of the key focal points for investors in March. The Dutch went to the polls in the middle of the month, and the French public geared up for their general election in April.
The lack of surprise in the Netherlands, with the anti-EU candidate Geert Wilders failing to win enough seats to form a government, helped trigger a strong rally in European markets. Spanish equities rose 9.7% and Italian and French equities were up 8.6% and 5.6% respectively.
There was also the small matter of Prime Minister Theresa May triggering Article 50. This marks the start of Britain's negotiations over our departure from the EU. It is difficult to see how there will not be bumps on the road to full Brexit. It's in the EU's interest that some European financial services business be moved out of London and over to the EU in the future. Also, it is not in the interest of the EU for Britain to make a resounding success out of Brexit.
UK equities rose 1.2% in March, and the market has held up well since the referendum result. Large-cap UK stocks which get most of their revenues from abroad have offset the losses from mid- and small- cap stocks, which derive the majority of their revenues from the UK.
Sterling however continues to trade at low levels and we expect to see the pound as the best barometer of how negotiations are going.
Compared to equities, fixed income returns were much more muted. Gilts rose 0.34%, and there were small losses from global fixed income markets, and high yield. Emerging market debt was the best performer, up 1.8% in sterling terms, and this was a key driver of returns of our Dynamic portfolio performance.