A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Gary’s Market Comment
No surprises in the French election and we are not expecting any in the UK election in June. Macron has been described as ‘lucky’ because of the unpredictable geo-political activity across the globe over the last year. The timing of his Presidency may also be fortuitous as the French economy is in recovery phase, helped by strong data from the Eurozone in general and indeed, globally. The latest Purchasing Managers index suggests that the French economy is now growing at a similar pace to Germany!
This reinforces our commitment to improving our asset allocation to Europe. Once again, please note that Defensive and Defensive/Balanced portfolios will have limited exposure.
Updates from our Investment Partners
The Donald Trump reign caused an initial euphoria in the markets which has begun to unwind.
The portfolios have been focussed on large cap Growth but this is being adjusted in favour of mid to small cap stocks. The R&M World Recovery and Schroder income funds have since been added to the portfolio as a result.
Economic Update
The Bank of England voted 7-1 to keep base rates on hold at 0.25% at its latest Monetary Policy Committee meeting. The Bank also published a slightly lower GDP growth forecast, with expectations now for a rate of 1.9% for the year, down from its previous 2.0% forecast, but up from 1.8% in 2016. The Bank is also now expecting inflation to reach 2.7% this quarter, up from the 2.4% rate it was forecasting in February and higher than the current 2.3%. The figure is still expected to peak in Q3, but at the slightly higher level of just below 3%
Portfolio Update
7IM remains underweight UK assets, but our portfolios are overweight in terms of Sterling exposure due to 7IM’s ability to manage currencies. By way of an example, the 7IM Balanced Fund has 64.1% exposure to Sterling, but our allocation to UK equities is around just 10%. The portfolio positioning is designed to reduce investors’ reliance on the UK economy and heightened currency risk around Brexit, while protecting portfolios against exchange rate risk.
International diversification and managing Sterling currency risk do not have to be the same thing. So given the current volatile political environment and its impact on the Pound, you want to own international assets, but hedge currency risks back to Sterling where possible, so that you only receive the foreign asset performance.
Sources: LGT Vestra and 7IM
