COUTTS MULTI ASSET FUNDS UK
Coutts multi-asset funds are a range of UK-biased 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.
Fourth Quarter 2016
AS AT 31 DECEMBER
Fund returns were neutral to slightly negative over the fourth quarter. In November, the performance of European equities and emerging markets as well as a slight rise in the value of sterling weighed down on performance. We then recovered most of these losses in December.
Applying our core investment principles has led to many strategies benefiting from:
- Diversification - Currency gains from overseas equities have benefited returns for UK investors in recent months amid weakness in sterling (more so for the more globally oriented strategies).
- Value - We have limited exposure to government bonds – which we see as poor value – but continue to favour investment grade corporate bonds on a selective basis. While European and Japanese equities have underperformed since the start of the year, we see them as attractively valued relative to global peers.
- Patience - Long-term thematic positions, such as emerging market equities.
Fund returns, after fees (GBP Class A - distributing) Defensive Balanced Growth Equity Growth Last Quarter -0.02% 2.78% 4.60.% 5.29% Rolling 12 Months: End Dec 15 to end Dec 16 9.30% 11.83% 13.54% 15.58% End Dec 14 to end Dec 15 -0.45% -0.43% 0.14% 0.35% End Dec 13 to end Dec 14 8.30% 5.54% 3.99% 2.52% End Dec 12 to end Dec 13 - - - - End Dec 11 to end Dec 12 - - - - Blank cells represent periods prior to the Funds launch 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.
Diversification through trend-following alternative strategies
With interest rates set to rise further in the US and expectations of higher inflation, the long-term return prospects for government bonds have deteriorated. As a result, we have been adding diversified sources of returns to portfolios that are uncorrelated with risky assets, such as equities, through two new alternative strategies:
BMO GLOBAL EQUITY MARKET NEUTRAL FUND
The BMO Global Equity Market Neutral Fund seeks to generate a positive return through all market conditions. Its strategy involves investing in stocks that demonstrate one or more of five styles – value, momentum, size, low volatility, and growth at a reasonable price (GARP). The philosophy underpinning this approach is that a substantial amount of investment performance can be explained by these styles.
JP MORGAN GLOBAL MACRO FUND
The JP Morgan Global Macro Fund seeks to generate an annualised return of 7% above interest rates over the medium term by investing across a broad range of asset classes. The fund’s diversified and flexible approach allows it to capture asymmetric opportunities (where there is greater upside than downside potential) through the business cycle. In addition, the managers use a dynamic hedging process to mitigate risk.
Attractive valuations in healthcare
We believe the healthcare sector presents an attractive long-term investment opportunity, where demographic trends should support strong and consistent earnings. Yet share prices had fallen in the months before the US election over concerns that drug prices could come under pressure if Hillary Clinton became president. We took advantage of the attractive valuations by adding one of two funds in this sector:
Polar Capital Healthcare Opportunities
Polar Capital Healthcare Opportunities is managed by an experienced team with a strong track record and expertise in biochemistry and investing. They focus on identifying growth-oriented opportunities, predominantly in large-cap securities. But the fund has a strong tilt towards mid and small cap companies relative to its benchmark.
LGIM Global Health & Pharmaceuticals Index Trust
For more defensive portfolios we added the LGIM Global Health & Pharmaceuticals Index Trust, a passive fund that aims to track the performance of the FTSE Health and Pharmaceuticals Index. Given Polar’s concentrated fund has a relatively high tracking error (a measure of how much a fund’s returns diverge from the benchmark index), this more large-cap biased index-tracking option is seen as more suitable for defensive portfolios.
Increasing exposure to sterling
In the days following the Brexit result, sterling depreciated rapidly to multi-year lows against other major currencies. Although it remains depressed, we believe the pound’s valuation will move back in line with its long-term average in the months ahead. To take advantage of this expected appreciation, we are increasing our sterling exposure by:
JO Hambro European Equity Fund
Switching from the euro-denominated JO Hambro European Equity Fund to the hedged sterling share class. The managers behind this strategy combine their view of the global economy with fundamental company research to identify high-quality businesses. With a long-standing investment team and consistent returns, we see this fund as a core portfolio holding.
Value investing in Japan
GLG Man Japan Core Alpha Equity Fund
We initiated a new position in the GLG Man Japan Core Alpha Equity Fund to provide active exposure to Japan’s stock market. The managers follow a contrarian approach by investing in large-cap Japanese companies with strong management teams that are undervalued – typically because they are out of favour with the rest of the market. This strategy is consistent with our own investment philosophy, and we have confidence in the managers’ repeatable process and successful track record.
Early in the quarter we added healthcare, and also several trend-following hedge fund strategies. This was done largely at the expense of government bonds and also reduced our previously high cash weightings substantially in client portfolios, from about 9% to 3% in a typical balanced portfolio. We believe these strategies have limited correlation to equity markets, providing diversification benefits while also offering higher potential returns than government bonds.
In December, we took profits on overseas assets that have delivered strong returns (boosted by sterling weakness in the aftermath of the Brexit result) and repatriated those proceeds into sterling-denominated assets. Our analysis suggests sterling’s valuation should move higher from current historically low levels, back in line with its long-term average in the months ahead.
Summary of moves
- Exposure added to the healthcare sector at what we believe were attractive valuations. Added alternative strategies that can provide similar diversification benefits to government bonds, but where we see greater return potential
- Took profit on overseas assets that had benefited from sterling weakness and increased exposure to sterling-denominated assets given our forecast that the pound would appreciate
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.
This webpage is a financial promotion for UK regulatory purposes. It provides general information only and is not intended as a personal recommendation, nor does it constitute an offer or solicitation to invest in the fund. Coutts multi-asset funds are sub-funds of Coutts Multi Asset Fund plc, an open ended investment company with variable capital incorporated in Ireland and authorised by the Central Bank of Ireland pursuant to the European Communities Undertakings for Collective Investment in Transferable Securities Regulations, 2011 as amended, supplemented and consolidated from time to time.
Investors should read the fund’s prospectus and Key Investor Information Document carefully before investing. Investors should consider the investment objective, risks and charges of the fund, which are contained in the prospectus and Key Investor Information Document. Any decision to invest must only be made on the basis of the prospectus and Key Investor Information Document. Copies of these are available from your Wealth Manager or online at www.coutts.com/cmaf.
The information contained in this summary is believed to be correct as at the date of publication, but cannot be guaranteed. Opinions and projections constitute our judgment as at the date of publication and are subject to change.
To the extent permitted by law and regulation neither Coutts & Co nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon the above. Not all products and services offered by the individual Coutts companies are available in all jurisdictions and some products and services may be available only through particular Coutts companies. Certain aspects of the service may be performed through, or with the support of, different members of The Royal Bank of Scotland Group, of which Coutts & Co is a member.
Wealth division of Royal Bank of Scotland Group.
Coutts & Co. Registered in England No. 36695. Registered office 440 Strand, London WC2R 0QS.
Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Calls may be recorded.
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