Fund returns were positive across most asset classes over the third quarter, with a modest drag from UK commercial property, though the latter has now recovered much of its post-Brexit losses.

Both bond and equity markets generally had positive returns for the quarter as Brexit fears eased amid healthy UK business activity, consumer demand and job growth. Markets were also buoyed by central bank stimulus – with, for example, the Bank of England cutting interest rates to a new record low of 0.25% and renewing its bond-buying programme.

Following the strong post-Brexit rally and as many equity markets reached new highs for the year, we further trimmed our positioning during the review period to only a slight overweight stance. We believed post-Brexit gains were largely the result of statements and actions by the Bank of England and European Central Bank to restore confidence, and made our decision to trim equities after we felt the market had reached a level that reflected these central bank actions.

We retained the proceeds in cash, other than in growth portfolios where we used the proceeds to add a position in the BMO Global Equity Market Neutral Fund. The fund seeks to generate a positive return in most market environments, providing some diversification benefit as returns tend to move independently of equity markets (with the potential, for example, to post a positive return while equities are falling although negative returns can also occur).

In August we reduced our allocation to the shares of global banks following a period of strong performance for the sector, boosted by sterling weakness. For Defensive portfolios, which do not hold the bank-equity theme, we reduced our allocation to local-currency denominated emerging-market debt.  Across all portfolios, we used the proceeds to increase exposure to bonds issued by financial institutions, which we see as having attractive yields that are backed up by robust capital structures.

We also took some profits in local-currency emerging market debt in growth portfolios, using the proceeds to increase exposure to investment-grade (higher quality) corporate bonds, slightly reducing overall risk in portfolios.

Summary of moves

• Reduced equity to slight overweight
• Added BMO Global Equity Market Neutral Fund
• Reduced financial shares
• Increased financial bonds
• Reduced emerging market debt (in local currencies)
• Increased global investment grade bonds

(Please note: not all moves will be relevant for all portfolios)

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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