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Investment insights

Investment Review
Month ending 30 June

Markets

Trade tensions weighed on equity performance, with only the US delivering positive local currency returns. GBP weakness boosted US returns in GBP terms (+1.3%) and translated to modest positive returns for European equities (+0.2%). However, yen strength exacerbated the decline in Japan (-1.8%). The UK delivered -0.1% while emerging markets were the laggards, declining -3.7%.

Local currency bond performance was mixed. European government bonds recovered strongly, gaining +1.4%, and US government bonds edged +0.1% higher. In the UK, both Gilts (-0.6%) and corporate bonds (-0.3%) declined.

GBP continued to decline against USD (-0.7%) and EUR (-0.6%), but strengthened versus JPY (+1.1%).

Oil appreciated strongly in June, gaining +10.6% in USD terms, while gold weakened -4.2%.

Investment outlook

While markets have recovered strongly in the last three months, volatility remains high, and we recognised this may continue, as the risk of a potential trade war continues to worry investors.

Nonetheless, the fundamentals remain robust. Global growth continues but it is becoming less synchronised, with the US decoupling from the rest of the world. While global economic data may show signs of slowing, corporate earnings growth continues to be very resilient and we expect solid economic and profits growth to continue for now, albeit at a slower pace.

In the current economic climate, we still believe that shares can continue to outperform bonds, although we expect more modest returns and higher volatility than 2017. We remain slightly overweight equities and underweight bonds.

At a regional equity level, we remain overweight the US, Europe, Japan, and select emerging markets. Given the less attractive outlook in Europe at the moment, we have trimmed our exposure. We remain underweight the UK, where uncertainty remains high, but we have added modestly. The UK index continues to be attractively priced, with an above average dividend yield, offering income, and exposure to sectors that do well in the later stages of the cycle.

Investor insights

  • Investor Insight Spring 2018

    Published:
    17/04/2018
    Filesize:
    286Kb
    Filetype:
    PDF
    After an almost perfect year for returns in 2017, markets were ripe for a correction and increased volatility, and this came in spades in Q1. The catalysts were initially the prospect of tighter liquidity and anticipated interest rate rises in February, triggering the first sell off in risk assets. Markets briefly rebounded and then corrected again on fears that threatened tariffs and increased protectionism by the US could evolve into a full blown trade war. Recently markets have being moving up and down on headline news, which can be unsettling for clients.
    View download
  • Investor Insight Winter 2017/18

    Published:
    15/02/2018
    Filesize:
    236Kb
    Filetype:
    PDF

    We believe 2018 will continue to enjoy strong economic and profits growth, but rising interest rates and inflation are bringing an added level of risk to markets. We believe that shares will continue to outperform bonds. However, in contrast to 2017, when returns were high and risk (as measured by volatility) was low, we expect more modest returns and increased volatility. In other words, risk assets can move higher but investors will experience more bumps along the way.

    View download

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