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Weekly Investment Update

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Summary

International earnings reduce reliance on the UK economy, the outlook for Japan and five years of Coutts Multi-Asset Funds

3 min read

Not bothered by Brexit?

The UK economy remains relatively resilient despite some negative noise this week.

British retail sales, not including new stores, were down 1% year-on-year in October according to the British Retail Consortium, the European Commission cut its UK growth forecast for this year and next, and Brexit uncertainty persists.

But at the same time industrial production rose ahead of expectations in September and the country’s trade deficit narrowed, Office for National Statistics data showed.

Against this background, the FTSE 100 is up about 9% so far in 2017 and the FTSE 250 is up about 14%.

While UK equities remain vulnerable in the face of uncertain Brexit negotiations, we believe they are supported by the robust global economy as the FTSE 100 generates about two-thirds of its revenue from outside the country.

We have a neutral exposure to UK equity, tilted towards high-quality large-cap companies with significant overseas earnings which make them less dependent on the domestic economy.

“We like Japan at Coutts, it was one of the investment opportunities we highlighted at the beginning of the year and we continue to see it as an under-appreciated market.”

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The Japanese boom

Japan’s Nikkei 225 Index recently hit a 25-year high, recorded 16 straight days of rises and saw a 19% lift between September and November. Third quarter earnings growth in the country is running more than twice as fast as the US.

Prime Minister Shinzo Abe’s solid election win last month cemented continuity in fiscal and monetary policy, the economic environment is favourable and showing sturdy growth, and inflation – while still not near the country’s 2% target – is positive and heading in the right direction.

We have liked Japan for some time at Coutts and continue to see it as an under-appreciated market. We see a strong earnings outlook and attractive valuations compared to other developed markets.

 

Happy anniversary CMAF

This month we celebrate five years since the launch of the Coutts Multi-Asset Funds (CMAF) which have grown from a £500m initial investment to £2bn under management (as at 10 November).

Much has happened in the funds’ lifetime so far. There has been a crisis in Europe, a 75% drop in the oil price, fears that China would topple the global economy and the EU referendum.

The funds have navigated these events well. In some cases we held our nerve, in others we found opportunities. An example of this came in 2012 in the aftermath of the European economic crisis - a time when Italy was enduring a scandal relating to its then prime minister Silvio Berlusconi. We took a contrarian view – one of our investment principles – and made long-dated Italian bonds one of CMAF's initial holdings. We still hold such bonds in the funds today.

CMAF funds are designed to deliver attractive, long-term returns through investing in a broad range of assets including cash, bonds, equities, commodities and property. Find out more on our performance in our latest quarterly report.

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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