DISCRETIONARY INVESTMENT MANAGEMENT SERVICE
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.
First Quarter 2017
Over the period, portfolio returns have been strong. Our allocation to emerging markets has been a key contributor as the sector recovered from the Trump election shock in the previous quarter supported by a shift in sentiment towards the new president’s ability to implement his policies quickly or in the form he intended.
In terms of detractors, commodities – aside from gold – had a lacklustre quarter although the impact on portfolios was minimal as a result of the importance we place on diversification and our underweight positioning to the sector generally. Over the quarter, currency played less of a meaningful role than it did in 2016 with sterling largely flat over the period.
Applying our disciplined investment process and core investment principles has continued to underpin our decision making:
- Diversification. We continue to believe alternative strategies provide attractive levels of diversification to more traditional asset classes such as equities and bonds, as well as the potential for more attractive returns than government bonds.
- Value. We retain our conviction in our underweight positioning to government bonds where we see valuations as expensive - many yields are near or below zero - due to rising US interest rates and robust macroeconomic fundamentals. We continue to see European equities as attractively valued relative to global peers, especially US equities.
- Patience and Contrarian. We hold long-term thematic positions, such as emerging market equities and recently emerging market debt.
|Portfolio returns, after fees||Wealth Preservation||Wealth Enhancement (Medium Term)||Wealth Enhancement (Long Term)||Wealth Generation||Diversified Bond|
|Rolling 12 Months:|
|End Mar 16 to end Mar 17||10.6%||15.5%||19.4%||23.7%||6.8%|
|End Mar 15 to end Mar 16||-1.70%||-3.5%||-4.40%||-4.5%||-0.7%|
|End Mar 14 to end Mar 15||9.4%||9.1%||9%||9.20%||3.9%|
|End Mar 13 to end Mar 14||-0.7%||1.7%||4.00%||3.80%||-1%|
|End Mar 12 to end Mar 13||5.8%||8.5%||10.7%||12.2%||9.4%|
|Source: Coutts/Thomson Datastream|
|Charity and Trust Portfolio Returns, after fees||Charity Wealth Preservation||Charity Wealth Enhancement (Medium Term)||Charity Wealth Enhancement (Long term)||Charity Wealth Generation|
|Rolling 12 Months:|
|End Mar 16 to end Mar 17
|End Mar 15 to end Mar 16||-2.2%||-3.7%||-4.80%||-6.3%|
|End Mar 14 to end Mar 15||10.00%||9.3%||8.7%||8.7%|
|End Mar 13 to end Mar 14||-0.2%||2.2%||4.4%||3.60%|
|End Mar 12 to end Mar 13||6.4%||9.5%||11.2%||10.8%|
|Source: Coutts/Thomson Datastream|
During the quarter we introduced exposure to emerging market local currency debt having identified an opportunity to invest at attractive valuations, taking advantage of what we believe to be short-term negative sentiment triggered by President Trump’s protectionist rhetoric. The economic environment is improving generally for emerging markets which is supportive for local currencies and we also see inflation and interest rates trending down. This trade aligns with a number of our investment principles including macro informed asset allocation and value.
(Please note: not all fund additions will be relevant for all portfolios)
In an environment of rising interest rates and inflation expectations, we continue to believe alternative strategies can provide good levels of diversification and the potential for more attractive returns compared to more traditional asset classes such as government bonds. In this regard, funds such as the Old Mutual Global Equity Absolute Return Fund have been supportive of our view over the first quarter.
We believe emerging market local currency debt represents an attractive investment as part of a diversified portfolio with the opportunity for attractive earnings through high coupons and capital appreciation as currencies revalue and local interest rates decline. This is in contrast to high yield bonds where we believe return expectations are less favourable.
We added the following fund in the quarter:
- The Blackrock BGF Emerging Market Debt Local Currency Fund seeks to outperform the JPMorgan Government Bond Emerging Markets Index through diversified exposure to emerging market debt denominated in local currencies. The fund holds bonds issued by governments such as Brazil and Mexico, together with some agencies and companies. The top-down investment philosophy focuses on identifying economic and market themes that have an impact on asset prices. These themes inform the managers’ views on market direction and how the fund is positioned. The manager employs a dynamic implementation policy which means positions change depending on the development of each theme and the associated risks.
During the quarter our positive view on European equities has remained unchanged. There have been strong signals in terms of economic growth and this has fed through to positive corporate earnings for both small and large-sized companies. The valuations of European equities are lower than US equities so this means it is still attractive to add to the asset class based on our core ‘value’ investment principle.
An interesting change we made in our DIMA portfolios in the first quarter was to sell our holdings in funds that invest in mining company equities, reinvesting in the Capital Group New Perspectives Fund. This fund focuses on blue-chip-quality companies that have the potential to develop into leading multinationals. By taking advantage of opportunities generated by changes in global trading patterns, economic and political relationships, the strategy has delivered more than four decades of long-term superior results consistently over many different market conditions.