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 2018
PORTFOLIO
PERFORMANCE
After a difficult Q1, all strategies saw a positive absolute return in Q2 as share markets bounced back and our preference for equities over bonds continued to be positive for portfolios. Investor sentiment wobbled at the end of June, however, as negotiations failed to prevent US trade tariffs from coming into force in the EU and China, and trade war rhetoric ramped up.
Having added to our FTSE 100 holdings in Q1 when prices were at a low, we benefitted well from the index’s revival in the second quarter. The FTSE 100 made back all its losses from Q1 and more, to show a 9.6% return over the quarter. Weaker sterling was a significant factor in the rise, as non-sterling earnings of the multi-national companies that dominate the index benefit from a weaker pound. A higher oil price was also positive for the energy tilt of the index and some acquisitions also drove share prices up.
Elsewhere in equity, Europe and Japan did less well this quarter and, while we suffered a little from having an overall underweight position in the US, this was offset to a degree by a good choice of companies within our US portfolio. Our equity themes of technology and healthcare continue to benefit performance.
Government bonds flagged as investor confidence in equities returned in April and May, but saw a small revival in June as equity markets fell, ending the quarter more or less flat.
Our disciplined investment process and core investment principles underpin our decision making:
- Value and selectively contrarian – The rebound in the FTSE 100 this quarter shows the benefit of taking the contrarian view. While returns have been largely driven by the effect of a weaker sterling, FTSE 100 companies represent high quality – with strong balance sheets and reliable earnings – that we believe will continue to deliver in spite of currency moves and the state of the UK economy.
- Macro-informed asset allocation – Trade war fears continue to have a negative effect on investor sentiment, and equity markets slipped at the end of June as US tariffs on China and Europe took effect. While the effects of a potential trade war shouldn’t be discounted, in our view the overall impact of tariffs on global trade is not sufficient to disrupt worldwide growth and we maintain our positive view on equities.
- Patience – Emerging market debt has had a difficult half year, with a stronger US dollar and trade war concerns having a negative impact. However, we continue to find the yields attractive, particularly in relation to developed market bonds, and have a positive long-term view on emerging economies. Higher yields typically reflect higher risk and some ups and downs should be expected.
| Portfolio returns, after fees | Wealth Preservation | Wealth Enhancement (Medium Term) | Wealth Enhancement (Long Term) | Wealth Generation | Diversified Bond |
|---|---|---|---|---|---|
| Last Quarter | 0.4% | 2.7% | 4.7% | 7.5% | -2.7% |
| Rolling 12 Months: | |||||
| End June 17 to end June 18 | 1.0% | 3.8% | 5.4% | 7.1% | -1.6% |
| End June 16 to end June 17 | 9.2% | 14.7% | 18.9% | 21.8% | 5.8% |
| End June 15 to end June 16 | 4.0% | 1.6% | 0.3% | 1.4% | 4.3% |
| End June 14 to end June 15 | 4.5% | 4.4% | 4.7% | 4.4% | 0.0% |
| End June 13 to end June 14 | 5.3% | 7.0% | 8.5% | 8.6% | 4.4% |
| 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 | Charities and Trust |
Charity Wealth Preservation | Charity Wealth Enhancement (Medium Term) | Charity Wealth Enhancement (Long term) | Charity Wealth Generation |
|---|---|---|---|---|---|
| Last Quarter | 2.4% | 0.5% | 2.9% | 4.8% | 7.4% |
| Rolling 12 Months: | |||||
| End June 17 to end June 18 |
2.7% | 1.1% | 3.9% | 5.5% | 6.8% |
| End June 16 to end June 17 | 13.0% | 8.8% | 15.0% | 19.1% | 21.3% |
| End June 15 to end June 16 | 1.4% | 3.4% | 1.0% | -0.7% | -0.7% |
| End June 14 to end June 15 | 4.0% | 4.8% | 4.8% | 4.5% | 3.6% |
| End June 13 to end June 14 | 6.6% | 5.2% | 6.8% | 8.4% | 7.9% |
| 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.
Holdings and
Portfolio Update
We maintained our positions over the second quarter of 2018 as markets stabilised following the volatility of Q1. We continue to prefer equities over bonds as the outlook for global growth remains positive. Within this picture of overall growth, we note that 2018 has seen the US maintain the growth momentum from 2017 while other developed economies have moderated.
We added to our FTSE 100 holdings in February when prices fell. While the outlook for the UK economy is uncertain given the complexities of the withdrawal from the EU, UK companies typically have an international outlook and should benefit from the strong global economy.
We made adjustments to our gilt portfolio in June to increase the overall duration of our holdings. This allowed us to take some profits from short-duration bonds and bring our own holdings into line with the benchmark, reducing our overall portfolio risk.
We have a positive view on Europe – although economic growth has been slower over the last six months than the levels seen in 2017, the upward momentum remains firmly entrenched for the time being. We also maintain our preference for Japanese equities based on the positive environment for corporate earnings.
(Please note: not all positioning changes will be relevant for all portfolios)
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.
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.
