Personal Portfolio Funds UK
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
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.
|Cautious (Lower risk)
|Mostly bonds (at least 70%)
|Conservative (Lower - Medium risk)
|Mostly bonds (at least 50%), some equity
|Balanced (Medium risk)
|Equities (at least 45%) and bonds
|Assertive (Medium-Higher risk)
|Mostly equities (at least 65%), some bonds
|Adventurous (Higher risk)
|Mostly equities (at least 90%), minor cash 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.
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.
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.
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.
27-Feb-2023As the new tax year approaches, you might want to know about possible changes to what you’ll pay in tax. In his Autumn Statement last November, Chancellor Jeremy Hunt announced a series of tax freezes and adjustments. While there are no personal tax rises, the fact that some rates have been frozen following a year of rising prices means we’re likely see more people fall into the higher rate category and find themselves paying more tax as wages increase.