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Personal Portfolio Funds UK

QUARTERLY FOCUS

The Personal Portfolio Funds (PPF) invest in a range of asset classes such as cash, bonds and equities and offer a number of different risk profiles.
 

Fourth Quarter 2017

Fund

PERFORMANCE

The Personal Portfolio Funds (PPF) 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

 

  • A key positive contributor to performance has been our ongoing preference for the European and Japanese equity markets. Europe was among 2017’s best performing markets in sterling terms while the Japanese equity rally included the Nikkei 225 Index hitting a 25-year high.
  • We continue to be slightly overweight equities, which have benefitted from synchronised global growth. Leading indices around the world, including the FTSE 100, have reached record highs in recent months.
  • We remain underweight in UK government bonds due to the backdrop of rising interest rates and inflation, preferring investment grade and high yield corporate bonds as well as emerging market debt. In the UK, gilt yields fell and prices rose towards the end of 2017 due to Brexit negotiations and the associated economic uncertainty.
  • Bank of England raises rates while European Central Bank stands firm.

    There were no surprises from central banks on interest rates towards the end of 2017. The Bank of England (BoE) announced the first UK interest rate rise in over a decade in November. As we expected at Coutts, the bank lifted the base rate from 0.25% to 0.5%, reversing the emergency cut it introduced following the UK’s vote for Brexit.

    A rise had been priced-in by the markets. Higher than expected GDP growth, inflation reaching 3% – the bank’s target is 2% – and tight labour market conditions made it practically inevitable. Inflation rose again to 3.1% in December, but the BoE maintained its stance that inflation was peaking and would trend downwards over the course of 2018.

    The BoE used cautious language when talking about the future – with further rises coming “at a gradual pace and to a limited extent”. The bank’s governor Mark Carney has spoken of just two more rises in the next three years.

    Meanwhile, the European Central Bank (ECB) kept interest rates at zero. The bank also raised its economic growth forecast for the eurozone and confirmed that it would halve the pace of its bond-buying scheme from January, dropping the amount of assets it buys every month to €30bn from €60bn. This all reflects the strengthening European economy, supporting our preference for the region’s equities.

  • After years in a deflationary mire, things are looking up for Japan.

    As part of our investment outlook for 2018 – Investing through disruption – we highlight Japan as a key area to watch this year. The country’s economy has been beset with problems for years but good fortune finally appears to be returning.

    Japan saw seven straight quarters of economic growth in 2017, its longest period of expansion since 2005. The Nikkei 225 Index has recently hit a 26-year high, recorded 16 straight days of rises and, between September and November, shot up by 19%.

    Our outlook says: “We expect the re-elected government of Shinzo Abe to continue its reform program, while the Bank of Japan will maintain monetary policies that are helpful for companies and the financial markets.

    “These factors underpin our view that Japan’s prospects are normalising and that the outlook for Japanese equities is positive. In our view, corporate balance sheets are healthy and equity valuations look attractive compared to other major markets.”

    Investing through disruption identifies our investment convictions for 2018 and five key challenges we think will define the investment landscape in the year ahead. It also looks at emerging trends that could affect our clients’ long-term wealth, such as technology and inequality.

  • There have been recent reminders of why Europe remains one of our preferred regions for equities.

    Eurozone industrial production rose 1% in November, ahead of expectations, and the region’s unemployment rate fell to 8.7% – its lowest level since 2009.

    Also, the German economy grew by 2.2% in 2017, according to the country’s Federal Statistical Office, its fastest pace in six years and its eighth consecutive year of growth.

    Europe is further behind in the economic cycle than the US and is in a good position to benefit from current global economic strength. That’s one of the reasons why European equities were among 2017’s best performers in sterling terms. We believe there is still room for prices to rise as the pick-up in economic activity supports consumer spending and increased investment by companies.

     

Performance

table

  Fund returns, after management and administration fees (platform fees not included)

Fund

Last quarter

Dec 16 to Dec 17

Personal Portfolio Fund 1

1.9%

3.7%

 Personal Portfolio Fund 2

2.8%

6.2%

 Personal Portfolio Fund 3

3.5%

8.5%

 Personal Portfolio Fund 4

4.1%

11.2%

 Personal Portfolio Fund 5

5.1%

14.4%

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.

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