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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.
 

Third Quarter 2018

Fund

PERFORMANCE

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

They are a simplified representation of our long-term investment house view. These five funds are actively managed but are implemented through an index tracking approach. The five risk profiles enable investors to choose among the funds depending on their individual objectives and appetite for risk.

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

Spotlight on

Asset Allocation

 

  • We made no asset allocation changes to the funds in the third quarter of 2018. Strong global growth, led by the US, continues to be positive for equities, while our bond portfolio provides diversification benefits during periods of volatility. On the whole, we still see a preference for equities as the right positioning for the time being.
  • We still like Europe. We reduced our overweight to the continent earlier in the year in favour of the US – making our overall exposure to America broadly neutral – but still see attractive valuations.
  • Returns from the FTSE 100 have been more or less flat over the quarter and the year-to-date. We opportunistically increased our investment in the index in February when prices were low following a sell-off, and our funds have benefitted from the subsequent recovery.

  • UK still good for business despite Brexit

    There remains plenty for investors to like about the UK

    Brexit has cast a cloud over the UK but the country continues to attract global companies that currently have strong earnings – and that’s good news for investors.

    Britain is consistently ranked by the World Bank as one of the easiest places to do business – it is seventh out of 190 countries right now.

    The FTSE 100 index, which forms a large part of our own investment in the UK, is dominated by global firms, and companies within that index have benefitted from the weak pound brought on by Brexit uncertainty. They generate about 75% of their revenues overseas so that money becomes worth more when translated into the cheaper pound.

    This raises UK company profits and makes them more attractive for investors, which generally translates into higher share prices.

    British economic growth has continued since 2016’s European Union referendum result, albeit at its slowest pace in six years. UK shares have seen solid performance in that time, with the FTSE 100 up around 30%.

    Meanwhile, domestically there are also things for investors to feel positive about, such as the UK’s unemployment rate currently sitting at 4% – its lowest level for over 40 years.

    We examine Brexit in more detail in a special report now available.

  • Why the US should survive the trade war

    The US economy remains strong and there is currently little sign of that changing

    Trade tensions between the US and China are unlikely to have a big impact on the world economy in their current form.

    While the prospect of the situation escalating is cause for concern, the general view from market analysts is that, as things stand, that is unlikely.

    Most importantly, there are no current signs of a big impact on the US economy, which is crucial to global growth right now as it is expanding faster than the rest of the world.

    US exports to China accounted for less than 10% of total US exports last year, according to the Office of the US Trade Representative. China is still America’s third biggest export market, so is important to the country, but such a small percentage highlights the relatively limited impact of any trade war at the moment.

    There are also other indicators of the US economy staying strong for now. The ISM Manufacturing Index, which measures how companies feel about the economy, reached 61 in August (a number above 50 is positive). Also, US company profits are expected to rise 21% this year, according to investment services company Raymond James in August.

    Recognising the current strength of the American economy, we moved money earlier this year from our holdings in emerging markets – which saw great gains in 2017 – and Europe to the US as the backdrop there is currently more supportive of equity investing.

  • Japan stays strong

    The Japanese economy is holding up well and remains a preferred area for us

    Resilient economic growth, robust company profits and encouraging central bank activity continue to make Japanese equities attractive in our view.

    Economic growth in the country is slowing down, like most parts of the world outside the US, but holding steady. The International Monetary Fund has forecast that the Japanese economy will grow 1.1% this year, slightly higher than its previous estimate.

    The country is generally more defensive than other equity markets – historically it tends to do better during a slowdown partly because its companies hold a lot of cash. Investors generally see Japan as something of a safe haven at such times.

    Meanwhile, about 19% of Japanese company revenues are generated in China and the rest of Asia. This could bode well if we see a rebound in the Chinese economy – which we think is likely – as it would have positive implications for the whole region.

    The Japanese government and the Bank of Japan continue to take action to boost their own economy, pumping money into the system by buying bonds and equities, and introducing structural reforms to improve corporate governance. This is a clear show of support for domestic markets and positive for investing. It has no doubt contributed to the MSCI Japan Index rising over 13% in sterling terms at the end of Q3 2018 compared to the same time last year.

    At Coutts, we have liked Japanese equities for some time and highlighted the country as one to watch this year in our 2018 investment outlook Investing through disruption. It continues to be a favoured area for us and we think the outlook remains positive. 

Performance

table

Fund

Last quarter

Sept 17 to Sept 18

 Sept 16 to Sept 17

Personal Portfolio Fund 1 - Lower Risk

0.2%

1.9%

 1.1%

 Personal Portfolio Fund 2 - Lower/Medium Risk

1.0%

3.8%

 4.2%

 Personal Portfolio Fund 3 - Medium Risk

1.7%

5.4%

 6.9%

 Personal Portfolio Fund 4 - Medium/Higher Risk

2.5%

7.4%

 10.3%

 Personal Portfolio Fund 5 - Higher Risk

3.3%

 9.8%
 14.0%
*The returns are derived from the Fund net asset values (NAV) and are quoted net of all fees paid from within the Fund, which include the on-going charges figure (OCF) and transaction charges but do not include the platform fees or any potential one-off charges (e.g. advice fees or dilution levy).

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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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