PPF Quarterly Focus

Personal Portfolio Funds UK

QUARTERLY FOCUS

Personal Portfolio Funds invest in a range of asset classes such as cash, bonds and equities and offer a number of different risk profiles to meet client needs and goals.

First Quarter 2017

Fund

PERFORMANCE

The Personal Portfolio Funds are a simplified representation of our long term investment house view. These five funds are actively-managed but are largely implemented through passive funds. The range of risk profiles enables investors to choose among the funds depending on individual objectives and appetite for risk.

PPF 1	Cautious (Lower risk)	Mostly bonds (at least 70%)
PPf 2	Conservative (Lower - Medium risk)	Mostly bonds (at least 50%), some equity
PPf 3	Balanced (Medium risk)	Equities (at least 45%) and bonds
PPf 4	Assertive (Medium-Higher risk)	Mostly equities (at least 65%), some bonds
PPf 5	Adventurous (Higher risk)	Mostly equities (at least 90%), minor cash allocation

Spotlight on

Asset Allocation

In January we reduced the allocation to UK gilts (UK government bonds), and increased the allocation to UK credit across most of the funds.
Throughout the quarter, we have maintained our underweight position on US equities for all of the funds, and an overweight exposure to European and Japanese equities where we see value over the longer term.

The Gilt Challenge

We currently hold individual direct UK gilts to represent our government bond exposure across the funds. We see this as the most efficient way of gaining exposure to this area of the market at a sensible price.

Over the first three months of 2017, the trend for UK gilt yields has been downwards (meaning prices have risen slightly). This fall is the result of inflation expectations around the world rising and more recently the market reaction to President Trump’s failure to pass his proposed healthcare reforms. This has raised questions about whether he will be able to follow through with pro-growth policies that have encouraged equity markets to record highs recently.

We have responded by reducing our allocation to UK gilts while increasing our weightings in UK investment grade credit and emerging market equities and debt, all of which we believe have the potential for higher returns. Within our remaining exposure to gilts, we have moved into shorter maturity securities at the expense of longer dated gilts which are more sensitive to changes in interest rates and are more likely to be negatively impacted by interest rate rises.

In summary, against these shorter-term movements, our long-term view is that government bonds represent poor value compared with other asset classes. Although gilts still have a valid role to play in a balanced multi-asset fund as a potential source of diversified returns in uncertain times, equities and corporate bonds continue to look more attractive as the global economy enjoys a synchronised upswing.
An Overheated Market

We are cautious on US equities compared to other developed markets as we believe this asset class is now relatively expensive.

Leading US stock market indices hit successive fresh highs during the first quarter of 2017. Investors shrugged off concerns about protectionist trade policies and remained optimistic about President Trump’s promises to cut taxes, increase infrastructure spending and reduce regulations.

Markets faltered towards the end of the quarter when the new administration failed to implement its healthcare reform bill. The defeat raised doubts about the president’s ability to introduce the economic reforms promised during his campaign. However, the rally resumed with investors encouraged by positive economic news.

Data revealed consumer confidence is at a 16-year high and the number of jobs has grown for 78 consecutive months. Meanwhile, the rate of GDP growth in the final three months of 2016 has been revised higher. In response, the Federal Reserve raised interest rates in February with policymakers suggesting two more could follow before the year ends.

Supported by a strong economic backdrop, the outlook for US equities remains positive. Yet valuations are much higher than other developed markets, implying lower potential returns. Performance this year is likely to depend largely on whether US companies can meet their earnings expectations as well as Trump’s ability to follow through on his election promises.
The European Comeback

We are more positive on European equities as we believe they present attractive valuations backed by strong economic data.

The recovery in the euro area is gathering pace. Its economy grew by 1.7% in 2016 and the unemployment rate has fallen to its lowest level since 2009. The region also passed its first political hurdle of the year without upset when populist candidate Geert Wilders was defeated by the existing Prime Minister, Mark Rutte.

This strong economic backdrop has supported European stock markets, which performed in line with US equities over the first quarter of 2017. The latest data reflects a positive outlook, including strong consumer and business confidence survey results and manufacturing activity reports.

Political risks remain with upcoming elections in France and Germany as well as the start of the two-year Brexit negotiations. There are also lingering concerns about Greece’s government debts, and the European Central Bank is pondering a pull-back on quantitative easing now that deflation fears have faded.

Despite these concerns, we believe the outlook for European equities remains very positive. Patience is key with evidence mounting that the long-awaited recovery may finally be under way. The market is one the most fairly valued in the developed world, the outlook for earnings growth is attractive and investor sentiment is turning more positive.

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

This webpage is a financial promotion for UK regulatory purposes. It provides general information only and is not intended as a personal recommendation, nor does it constitute an offer or solicitation to invest in the fund. The Personal Portfolio Funds are sub-funds of Equator ICAV, an open ended investment company with variable capital incorporated in Ireland and authorised by the Central Bank of Ireland pursuant to the European Communities Undertakings for Collective Investment in Transferable Securities Regulations, 2011 as amended, supplemented and consolidated from time to time.

Investors should read the fund’s prospectus and Key Investor Information Document carefully before investing. Investors should consider the investment objective, risks and charges of the fund, which are contained in the prospectus and Key Investor Information Document. Any decision to invest must only be made on the basis of the prospectus and Key Investor Information Document. Copies of these are available from your Wealth Manager or online at www.coutts.com/cmaf.

The information contained in this summary is believed to be correct as at the date of publication, but cannot be guaranteed. Opinions and projections constitute our judgment as at the date of publication and are subject to change.

To the extent permitted by law and regulation neither Coutts & Co nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon the above. Not all products and services offered by the individual Coutts companies are available in all jurisdictions and some products and services may be available only through particular Coutts companies. Certain aspects of the service may be performed through, or with the support of, different members of The NatWest Group, of which Coutts & Co is a member.

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.

Calls may be recorded.

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