COUTTS MULTI ASSET FUNDS GLOBAL
Coutts multi-asset funds are a range of global funds that aim to deliver attractive long-term returns by investing in a broad range of asset classes such as cash, bonds, equities, commodities and property.
Second Quarter 2016
Safe-haven flows and a pull-back in expectations for a further US interest-rate rise supported government bonds
Lacklustre returns in equity markets challenged our equity-heavy funds, with dollar strength amplifying losses from Europe – one of our favoured regions – and offsetting positive returns from the UK. However, losses from Japan were mitigated by the yen’s strength against the dollar.
Some of our favoured equity themes, such as a preference for financials, were hurt by Britain’s referendum outcome, as investors sold out of sectors heavily correlated with the UK economy. The likelihood of further UK interest-rate cuts – or in Europe, the potential for rates to go even deeper into negative territory – was also seen as putting pressure on banks’ profit margins.
|Fund returns, after fees (USD Class A - distributing)
|Rolling 12 Months:
|End Jun 15 to end Jun 16
|End Jun 14 to end Jun 15
|End Jun 13 to end Jun 14
|End Jun 12 to end Jun 13
|End Jun 11 to end Jun 12
|Blank cells represent periods prior to the Funds launch
|Source: Coutts/Thomson Datastream
This fund is a means of accessing high-yield (lower credit quality) corporate debt, which we favour within the fixed income space.
Run by Union Bancaire Privee Asset Management (UBAM), the fund invests in European and US credit default swap (CDS) indices as a way of providing exposure to global high-yield returns. By selling protection on high-yield corporate debt (via indices), investors pay a premium similar to the implied credit risk embedded within high-yield bonds.
While the fund is largely passive in nature, UBAM actively manages the geographic exposure, interest-rate sensitivity (i.e. how far they will move when interest-rates change) and high-yield credit exposure to add value to the proposition.
We believe this unique strategy provides a competitively priced means of accessing high-yield debt through the liquid CDS market. As the fund sells protection, there is a significant reduction in interest-rate exposure compared to traditional high-yield bonds, and so will be less affected by a rise in interest rates. We think the strategy’s strong track record coupled with this low interest-rate sensitivity make this an attractive way of obtaining high-yield debt exposure in the current environment.
This ETF provides exposure to the Nikkei 400 Index, which was established in 2013 to promote corporate and shareholder values.
The constituents of Japan’s new index are selected by a four-step process. First, companies that have made losses over the previous three years are excluded, and a list of 1,000 stocks is generated, based on market capitalisation and liquidity (a measure of how easily shares can be bought and sold). This list is then scored on a number of factors, including the three-year return on equity (ROE) – a measure of the returns generated for shareholders – and cumulative operating profit.
We chose this fund as a low-cost way to express our preference for the Japanese market in general, and the Nikkei 400 Index in particular, given its potential as a catalyst for improving investment returns.
We believed further strong advances in equity markets were limited after the sharp rally, and valuations were looking relatively high
In May, we cut our position in gold-related assets, held through the BlackRock Gold and General Fund. Gold had rallied over 20% from its December 2015 low and miners had nearly doubled in price over that period. We saw factors supporting demand as unlikely to last, and took the rebound as an opportunity to switch into cash. Where relevant, we also switched German DAX and Spanish IBEX ETFs for DAX and IBEX futures.
Finally, signs of slowing growth in the world economy prompted us to further reduce our equity holdings in June. Again we boosted cash positions pending chances to reinvest – as we still remain positive on the longer-term outlook for global growth and equities. While consumer demand remains strong in major developed economies, the rebound in manufacturing has been disappointing. And in the US specifically, companies’ profit margins are falling, which is likely to have knock-on effects on capital expenditure and job hiring.
Summary of moves
- April – Scaled back equity overweight in favour of cash
- Switched passive ETF to active US equity fund
- May – Reduced gold-related exposure to boost cash position
- Switched from German & Spanish equity ETFs to futures
- June – Further reduced equity exposure – though remain modestly positive on equities in the longer term
(Please note: not all moves will be relevant for all funds)
27-Feb-2023As the new tax year approaches, you might want to know about possible changes to what you’ll pay in tax. In his Autumn Statement last November, Chancellor Jeremy Hunt announced a series of tax freezes and adjustments. While there are no personal tax rises, the fact that some rates have been frozen following a year of rising prices means we’re likely see more people fall into the higher rate category and find themselves paying more tax as wages increase.