Month ending 31 March
A very challenging month for equities, as trade war fears and tech worries weighed on sentiment and the US dollar. All main equity regions fell in GBP and local terms. In GBP terms, US equities were the worst effected, falling -4.7%. Japanese equities (-3.6%), emerging markets (-3.4%) and Europe (-3.3%) followed close behind. UK equities proved more resilient, falling -1.8%.
Bonds continued to make gains in March in local terms, with UK Gilts continuing to outperform (+2.2%), followed by European government bonds (+1.6%). European and US government bonds appreciated +1.2% and +0.5% respectively in local currency terms.
GBP reversed course, strengthening across the board, gaining +1.6% versus USD and +1.5% versus JPY. GBP also gained +0.8% versus EUR.
Both oil and gold also reversed the previous month’s weakness in USD terms. Oil strengthened +5.35%, while Gold gained +0.5%.
So far 2018 has offered investors a rather bumpy ride. While we expect strong economic and profits growth to continue, rising interest rates and the risk of a potential trade war are bringing an added level of risk to markets.
In light of the current environment we have trimmed risk over recent months. We believe that we are only part way through a correction, and further drawdowns may be still to come. Nonetheless, in the current economic environment, we believe that shares can continue to outperform bonds, although, in contrast to 2017, when returns were high and volatility was low, we expect more modest returns and higher volatility.
We remain slightly overweight equities and underweight bonds, having trimmed our overweight equity position. At a regional equity level, we remain underweight UK equities. We continue to favour Europe, Japan, emerging markets and the US.