DISCRETIONARY INVESTMENT MANAGEMENT SERVICE
QUARTERLY FOCUS
A discretionary managed investment solution, using a multi asset approach, designed to cover a number of different risk profiles to meet a range of client needs and goals.
Second Quarter 2016
Portfolio returns were positive across the risk spectrum over the second quarter, despite volatility stemming from uncertainties over the timing of US interest-rate rises and Britain’s vote to leave the European Union.
Both bond and equity markets delivered gains in sterling terms over the review period, with the sharp depreciation in the value of the pound buoying overseas returns. As the pound dropped, the value of non-sterling (overseas) assets rose for UK investors, when translated back into the home currency.
A focus on diversification, one of our core investment principles, worked well given portfolios (particularly equity-heavy mandates) hold a significant proportion of non-UK assets. In particular, negative exposure to Europe and Japan was generally offset by positions in currencies that strengthened against sterling. However, we missed out on some of the upside from sterling’s weakness against the dollar, given our relatively light holdings of US stocks, which we regard as expensive.
As the pound dropped, the value of non-sterling (overseas) assets rose for UK investors, when translated back into the home currency.
Within the UK market, our bias towards large-cap multi-national companies proved beneficial. The globally-focused FTSE 100 index overcame Brexit volatility at the end of the quarter to regain last August’s levels, strongly outperforming its more domestic, mid-cap FTSE 250 cousin.
However, some of our favoured equity themes, such as a preference for financials, were hurt by the referendum outcome, as investors sold out of sectors heavily correlated with the UK economy. The likelihood of further UK interest-rate cuts – or in Europe, the potential for rates to go even deeper into negative territory – was also seen as putting pressure on banks’ profit margins.
In bond-tilted mandates, we have a preference for corporate debt, which in the short term made more modest gains compared to UK government bonds. Gilts had a particularly good June as investors sought sanctuary amid the referendum-induced volatility and as Bank of England Governor Mark Carney emphasised that monetary conditions would remain easy.
| Portfolio returns, after fees | Wealth Preservation | Wealth Enhancement (Medium Term) | Wealth Enhancement (Long Term) | Wealth Generation | Diversified Bond |
|---|---|---|---|---|---|
| Last Quarter | 2.41% | 2.23% | 2.18% | 3.21% | 2.54% |
| Rolling 12 Months: | |||||
| End Jun 15 to end Jun 16 | 3.95% | 1.58% | 0.28% | 1.40% | 4.31% |
| End Jun 14 to end Jun 15 | 4.53% | 4.44% | 4.72% | 4.43% | 0.03% |
| End Jun 13 to end Jun 14 | 5.26% | 6.97% | 8.45% | 8.55% | 4.38% |
| End Jun 12 to end Jun 13 | 1.30% | 6.61% | 11.44% | 14.19% | 4.27% |
| End Jun 11 to end Jun 12 | 0.85% | -2.99% | -6.60% | -9.36% | 5.64% |
| Source: Coutts/Thomson Datastream | |||||
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.
Individual portfolio returns may vary.
| Charity and Trust Portfolio Returns, after fees | Charity Reserve Preservation | Charity Reserve Wealth Enhancement (Medium Term) | Charity Reserve Wealth Enhancement (Long term) | Charity Reserve Wealth Generation | Trust |
|---|---|---|---|---|---|
| Last Quarter | 2.35% | 1.98% | 1.72% | 2.66% | 2.60% |
| Rolling 12 Months: | |||||
| End Jun 15 to end Jun 16 | 3.42% | 0.95% | -0.69% | -0.73% | -2.78% |
| End Jun 14 to end Jun 15 | 4.75% | 4.77% | 4.48% | 3.64% | 2.77% |
| End Jun 13 to end Jun 14 | 5.17% | 6.84% | 8.44% | 7.90% | 4.78% |
| End Jun 12 to end Jun 13 | 2.09% | 7.82% | 12.41% | 13.92% | 6.39% |
| End Jun 11 to end Jun 12 | 1.73% | -2.27% | -5.98% | -11.02% | -4.49% |
| Source: Coutts/Thomson Datastream | |||||
The value of investments and any income from them can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance, please note the performance of individual portfolios may vary.
Spotlight on
Holdings
For a full breakdown of all the underlying funds within the strategies, please refer to our monthly factsheets, available from your private banker or wealth manager.
Holdings and
Portfolio Update
Having held our nerve during the brutal sell-off in risk assets at the start of the year – and been rewarded by the sharp rebound in the early spring – we took the opportunity to take profits in equities in April, moderating our positive stance on the asset class.
We believed further strong advances in equity markets were limited after the sharp rally, and valuations were looking relatively high. For example, the forward price-earnings ratio (PE) – share prices divided by estimated earnings for the next 12 months – for the MSCI World equity index was 16.1 versus its long-term average of 15.4. Sector performance also pointed to caution among investors, with defensive areas continuing to lead those more exposed to the economic cycle. We kept the proceeds in cash, awaiting opportunities to reinvest.
In May, we cut much of our position in gold-related assets, such as gold-mining shares. Gold had rallied over 20% from its December 2015 low and miners had nearly doubled in price over that period. We saw factors supporting demand as unlikely to last – these included dollar weakness (gold is priced in dollars, so dollar weakness makes gold cheaper to buy outside the US), the general commodity rally and heightened expectations for corporate defaults. Seeing these supports diminishing, we took the rebound as an opportunity to switch into cash.
We believed further strong advances in equity markets were limited after the sharp rally, and valuations were looking relatively high.
Finally, signs of slowing growth in the world economy prompted us to further reduce our equity holdings in June. Again, we boosted cash positions pending chances to reinvest – as we still remain positive on the longer-term outlook for global growth and equities.
While consumer demand remains strong in major developed economies, the rebound in manufacturing has been disappointing. And in the US specifically, companies’ profit margins are falling, which is likely to have knock-on effects on capital expenditure and hiring.
Summary of moves
- APRIL - Scaled back equity overweight in favour of cash
- MAY - Reduced gold-related exposure to boost cash position
- JUNE - Further reduced equity exposure – though remain modestly positive on equities in the longer term.
The value of investments and any income from them can go down as well as up, and you may not recover the amount of your original investment. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.
In the case of some investments, they may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed.
Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.
Important information
Wealth division of NatWest Group.
Coutts & Co. Registered in England No. 36695. Registered office 440 Strand, London WC2R 0QS. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority
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