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Europe And Japan Help Keep Coutts Ahead Of Peers

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Summary

Coutts latest investment performance, central banks’ recent rate decisions and what next for UK inflation

2 min read

Solid performance from Coutts investments

Coutts investment performance this year to the end of November was ahead of peers, boosted by our exposure to key equity markets and low allocation to gilts.

A typical balanced portfolio was up 7.9% year-to-date compared to an investment industry average of 5.5%.

While past performance cannot be taken as a guide to future returns, this solid set of numbers so far this year is encouraging news for Coutts investment clients.

A key contributor has been our preference for the European and Japanese equity markets, as both have been doing well this year. Europe is among 2017’s best performing markets in sterling terms while the Japanese rally included the Nikkei 225 Index hitting a 25-year high.

See more detail on the performance of a Coutts typical balanced portfolio in the table below.

 

Bank of England Governor must write to Chancellor

Bank of England (BoE) governor Mark Carney must now write a letter to UK Chancellor Philip Hammond explaining why the bank has missed its 2% inflation target by more than 1%.

It follows UK inflation rising to 3.1% for November – its highest level in six years. Air fares and computer games contributed to the increase, according to the Office for National Statistics, and prices in the services sector are also rising. Higher inflation is usually good for our portfolios and funds because of our preference for equities and property over bonds.

The BoE said it was relaxed about the rise and maintained its stance that inflation is peaking and will trend downwards over the course of next year.

The Monetary Policy Committee of the BoE voted unanimously this week to keep interest rates at 0.5% despite the higher inflation figure. Mr Carney reiterated his statements from November that further rises could be in store in 2018. Markets expect two rises before the end of 2020, although they don’t see the first happening until late next year.

Interest rate rises are generally not good for gilts and we retain our view that they are poor value. We have held a low allocation to gilts for some time and, where we do hold them, have shortened the duration to protect our portfolios and funds from rate rises.

With inflation currently high, it’s worth remembering that the Coutts Luxury Price Index shows that those buying luxury goods and services can face even fiercer price rises. They should therefore work harder to protect the purchasing power of their wealth.

“Europe is among 2017’s best performing markets in sterling terms while the Japanese rally included the Nikkei 225 Index hitting a 25-year high.”

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No Christmas surprises from central banks

The BoE wasn’t the only central bank to make an interest rate announcement this week, but all was pretty much as markets expected. The Federal Reserve (Fed) raised rates by 0.25% while the European Central Bank (ECB) stood firm at zero.

Fed officials said their decision underpinned "solid" improvements to the US economy, with unemployment at its lowest level in years and household and business spending up. It raised its growth forecast for the country and now expects 2.5% GDP growth next year compared to an earlier forecast of 2.1%. Three more rate rises are expected next year.

The rate rise potentially benefits the Financials sector which is a key element in all our portfolios and funds reflected through our credit and equity positions.

The ECB also raised its economic growth forecast for the eurozone and confirmed that it would halve the pace of its bond-buying scheme from January, dropping the amount of assets it buys every month to €30bn from €60bn. This all reflects the strengthening European economy, supporting our preference for the region’s equities.

Our next weekly investment update will be in the New Year.
  

Investment performance - TPS Sterling Balanced Portfolio (to 30 November 2017)
Values In percentage 12 Month Performance To End Of Last Quarter Calendar year performance YTD Since Inception 01/01/07 Risk - Standard Deviation
Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 2012 2013 2014 2015 2016 7.9 5.0 6.3
Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 6.4 8.8 5.5 1.3 12.2
Balanced Portfolio
6.6 5.4 0.9 13.5 8.5
Source: Coutts, Thomson DataStream, 2017

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment

Note: Performance figures are composite returns from the actual portfolios of all clients shown on a total return basis and quoted net of all fees. For the composite performance calculation, individual portfolio monthly returns are asset-weighted based on their respective asset values at the beginning of the month. Where data is not yet shown, this is because the strategies were not available.

 

About Coutts investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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