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Portfolio Service

QUARTERLY FOCUS

Investment strategies devised in line with your objectives and to maximise market opportunities.
 

second Quarter 2019

PORTFOLIO

PERFORMANCE

All funds rose in the second quarter of the year as ongoing economic growth and supportive central bank policies proved fruitful for markets. Share prices slipped in May largely due to renewed US-China trade tensions, but they recovered in June.

Global economic growth continues to slow, however. Against this backdrop, while remaining cautiously positive, we have tilted our portfolios and funds away from riskier markets and towards more defensive areas.

This move, which means we now have a more-or-less neutral position in equities, has benefitted performance. We are also holding cash to allow us to move quickly when we see investment opportunities in the event of any pull-back after the steep rebound so far this year.

We have sold our health care investments for now, as the sector is facing challenges in the US. Investors are concerned about political rhetoric against pharmaceutical prices – made with next year’s presidential election in mind. The worry is that such comments could be a prelude to profit-cutting policies for the industry. We will continue to monitor developments, however, and may well return to the sector when we feel conditions are more favourable.

We added to holdings in UK gilts and US Treasuries earlier in the year, as we believe they stand to benefit from the slower rate rises and lower inflation expectations brought on by central bank activity. We bought more Treasuries than gilts because the latter are vulnerable to Brexit-fuelled uncertainty. Our overall government bond position remains negative, however – just less so than at the start of the year.

Our disciplined investment process and core investment principles underpin our decision making:

  • Diversification – our decision to increase our investment in UK and US government bonds highlights the importance we place on having a diversified portfolio. Government bonds are attractive at times of greater uncertainty as they provide good hedging characteristics and therefore help to reduce risk.
  • Value and selectively contrarian – many investors have been avoiding sterling because of the cloud of uncertainty hanging over the UK while parliament continues to debate the best way ahead on Brexit. But we have increased our position in the currency as we see it as undervalued and actually showing strength on the world stage. Taking positions in currently ‘unloved’ assets – that are therefore good value – but that we think have long-term potential is a core aspect of our investment approach.
  • Patience – economic growth is slowing, but we had expected this and have positioned our portfolios and funds accordingly, keeping a close eye on the long-term outlook. Markets will always rise and fall day to day, but we believe patience is crucial. For us, the best move as investors is to stay focused on the future while maintaining a dynamic asset allocation to navigate markets.
Portfolio returns, after fees Defensive Balanced Growth
Last Quarter 2.2% 3.3% 4.3%
Rolling 12 Months:
End june 18 to end june 19 3.2% 3.6% 3.9%
End june 17 to end june 18
1.7% 4.2% 6.5%
End june 16 to end june 17 7.7% 13.2% 18.3%
End june 15 to end june 16 4% 3% 2.8%
End june 14 to end june 15 4.8% 6% 6.3%
Source: Coutts/Thomson Datastream

Past performance should not be taken as a guide to future performance.
The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
Individual portfolio returns may vary.

Holdings and

Portfolio Update

We sold our investments in health care as the sector has come under pressure in the US. As we enter US campaigning season, members of both political parties have voiced concerns over drug pricing which, if turned into policy, could hurt the profitability of health care companies.  

We removed our financial sector equity theme from portfolios and funds in January. It now looks less attractive considering the longer-term outlook of slower economic growth and central banks dialling down the pressure on interest rates.

We are also holding cash because, in the highly mobile markets seen over the last six months, it provides flexibility to take advantage of any opportunities that arise.

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


For a full breakdown of all the underlying funds within the portfolios, please refer to our monthly factsheets, available on request.

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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