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.
Second Quarter 2016
Fund returns were positive across the risk spectrum over the second quarter, despite volatility stemming from uncertainties over the timing of US interest-rate rises and Britain’s vote to leave the European Union.
Both bond and equity markets delivered gains in sterling terms over the review period, with the sharp depreciation in the value of the pound buoying overseas returns. As the pound dropped, the value of non-sterling (overseas) assets rose for UK investors, when translated back into the home currency.
A focus on diversification, one of our core investment principles, worked well given funds (particularly equity-heavy mandates) hold a significant proportion of non-UK assets. In particular, negative exposure to Europe and Japan was generally offset by positions in currencies that strengthened against sterling. However, we missed out on some of the upside from sterling’s weakness against the dollar, given our relatively light holdings of US stocks, which we regard as expensive.
As the pound dropped, the value of non-sterling (overseas) assets rose for UK investors, when translated back into the home currency.
Within the UK market, our bias towards large-cap multi-national companies proved beneficial. The globally-focused FTSE 100 index overcame Brexit volatility at the end of the quarter to regain last August’s levels, strongly outperforming its more domestic mid-cap FTSE 250 cousin.
However, some of our favoured equity themes, such as a preference for financials, were hurt by the 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.
In bond-tilted mandates, we have a preference for corporate debt, which in the short term made more modest gains compared to UK government bonds. Gilts had a particularly good June as investors sought sanctuary amid the referendum-induced volatility and as Bank of England Governor Mark Carney emphasised that monetary conditions would remain easy.
|Fund returns, after fees (GBP Class A - distributing)||Defensive||Balanced||Growth||Equity Growth|
|Rolling 12 Months:|
|End Jun 15 to end Jun 16||2.18%||-0.98%||-2.85%||-2.90%|
|End Jun 14 to end Jun 15||5.55%||5.69%||6.12%||5.69%|
|End Jun 13 to end Jun 14||7.71%||8.66%||9.13%||8.99%|
|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|
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.
Lyxor Nikkei 400 exchange traded fund
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.
UBAM Global High Yield Solution
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.
Having held our nerve during the brutal sell-off in risk assets at the start of the year and been rewarded by the sharp rebound in the early spring, we took the opportunity to take profits in equities in April, moderating our positive stance on the asset class.
We believed further strong advances in equity markets were limited after the sharp rally, and valuations were looking relatively high. For example, the forward price-earnings ratio (PE) – share prices divided by estimated earnings for the next 12 months – for the MSCI World equity index was 16.1 versus its long‐term average of 15.4. Sector performance also pointed to caution among investors, with defensive areas continuing to lead those more exposed to the economic cycle. We trimmed positions in the US, UK, the Pacific Basin and Europe, keeping the proceeds in cash as we await opportunities to reinvest.
We also shifted from an S&P exchange traded fund (ETF) to the Edgewood US Select Growth Fund to increase our active exposure in the US market.
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. 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
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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