Investment strategies devised in line with your objectives and to maximise market opportunities.
third Quarter 2019
Despite volatility over the summer, all strategies offered a solid return over the quarter. The defensive strategy in particular did its job, with a lower draw down than other portfolios during the difficult period in August, mainly reflecting strong performance from bonds.
This quarter we’ve moved some of our equity allocation out of the UK and into the US. This has been part of a general increase in quality assets in our portfolios as we take a more defensive position in the face of slower global growth. We still have confidence in larger UK companies, where valuations are attractive, and have retained exposure to this area of the market. This should help preserve our clients’ wealth while slower economic growth continues.
Central bank policy took a decisively supportive turn in the quarter, which should be beneficial for portfolios. The US Federal Reserve (Fed) reduced interest rates twice, the European Central Bank introduced a range of rate easing polices and the Bank of England signalled ‘lower for longer’ rates, and even the potential for rate cuts in some Brexit scenarios. This should be being positive for our equity exposure, as looser monetary policy typically leads to rising markets.
Our disciplined investment process and core investment principles underpin our decision making:
- Quality – We added to US equity, bringing our allocation up to a neutral weight. US equities typically display higher quality characteristics and tend to be better placed to perform over different economic conditions.
- Macro-driven – Our ‘curve steepener’ position – which favours short-term bonds over long-term bonds – is based on our analysis of underlying economic trends. As the global economic cycle enters a slower phase after a period of extended growth, we expect to see central banks reduce base interest rates. This should lead to falling prices for longer-term bonds and rising prices for shorter-term bonds.
- Value and selectively contrarian – Given sterling’s attractive valuation, we recognise the potential for gains if the political climate improves. While we’ve reduced exposure to sterling-based assets recently in recognition of short-term volatility, we retain a modest preference on the basis of our contrarian principles.
|Portfolio returns, after fees||Defensive||Balanced||Growth|
|Rolling 12 Months:|
|Sep 18 to Sep 19||5.4%||4.6%||3.7%|
|Sep 17 to Sep 18||1.4%||4.0%||6.9%|
|Sep 16 to Sep 17||4.2%||8.5%||11.9%|
|Sep 15 to Sep 16||9.9%||13.5%||17.8%|
|Sep 14 to Sep 15||2.0%||0.9%||-0.9%|
|Source: Coutts/Thomson Datastream|
The big change to portfolios this month was a part-rotation out of UK equities into the US. Our UK positions have been very positive over the last 12 to 18 months, and there is an element of profit-taking in the move as we think returns have reached a plateau for now. In addition, we have been tilting portfolios towards more quality assets as we have detected signs of weakness in the global economy. It’s important to note that we’re still positive on growth, and our overall positioning is neutral in terms of equities versus bonds.
Our move to increase our exposure to US Treasuries at the expense of gilts earlier in the year has had a positive effect on portfolios, as gilts have experienced significant volatility in the face of Brexit uncertainty. More recently, Treasuries underperformed because of market expectations of steeper rate cuts from the Fed. We still have confidence in the position, however, as market expectations realign with the Fed’s most likely approach for the rest of the year.
(Please note: not all positioning changes will be relevant for all portfolios)