A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
A Squeeze on the UK economy
The political scene is still uncertain to say the least. A report by Nationwide showed the London housing market has come under pressure in recent months and that UK consumer confidence and disposable income are being squeezed by rising inflation. Mark Carney, Governor of the BoE, has the tricky job of navigating the UK through high levels of inflation and record low levels of unemployment counterbalanced with great political uncertainty and lower growth prospects.
The Central Bank in Europe not yet ready to tighten?
The European Central Bank (ECB) has hinted that it might continue to be active in the region’s bond markets for longer than many expect. With a more concrete announcement anticipated on 26 October, some policymakers have signalled a wish to keep the bank’s quantitative easing programme in operation for most of 2018. Whilst tapering is expected as early as January 2018, many believe that key ECB interest rates will remain at their present levels for an extended period of time.
Hurricanes hit the job numbers
The US economy lost 33,000 jobs in September as employment in the leisure and hospitality sector shrank significantly, largely as a result of the disruption caused by hurricanes Harvey and Irma. This was the first fall in numbers since 2010 and was far weaker than the consensus 90,000 gain expected by economists. Data for July and August was also revised down by a total of 38,000. However, the unemployment rate declined to 4.2% – its lowest rate since February 2001. This showed that the storms had “no discernible effect” on the national jobless rate.
Gary’s market comments in conjunction with our investment partners
There has not been much of a turnover in the portfolios recently. Ourselves and LGT Vestra remain positive on Europe, although European equity markets have been held back by the significant strengthening in currency over recent months. The growth outlook in the region continues to improve though and recent earnings results look encouraging.
During the last quarter we switched out of the Blackrock European Equity Income Fund (pan European) into the Blackrock European Continental Income Fund (European ex-UK). This switch reduced the exposure to the UK and increased the European exposure.
Further investment in Europe is held through the Artemis Global Income fund and Lazard Global Listed Infrastructure funds.
The Standard Life Global Inflation-Linked Bond Fund has been removed from the Defensive and Cautious portfolios. The Fund was not giving an exposure to the global inflation and global growth theme because of the complex nature of the strategy and the number of derivative strategies they are running. Instead money has been reallocated to Invesco Perpetual Monthly Income Plus and Threadneedle Credit Opportunities Funds, both already held in the portfolios.
It now appears that Abe in Japan is likely to have his own way as his main opposition has stepped out of the election race. If Abe is re-elected then as investors in Japan [via the Baillie Gifford Japan and Japanese Smaller Companies funds] LGT Vestra would view the continuation of Abe’s premiership as a positive result. His policies have finally started to reignite momentum in the economy and it would give him another chance to push though necessary reforms and bring the budget deficit down.
Following the latest formal quarterly review of its investment positions, 7IM made the following changes to its risk rated portfolios:
- Trimmed their high yield bond positions by between 1 and 2%.
- Maintained their allocation to gold given that they still believe that investors may still need a safe haven in the event of another Trump related spat that causes global trade issues.
- Cut private equity holdings given their rich valuations/ prices which they believe are unlikely to rise further.
- Increased their cash positions in the Balanced and most risk averse strategies (Cautious and Moderately Cautious) in order to be able to take advantage of any market ‘corrections’ to the benefit of our clients.
- The cash positions in Moderately Adventurous and Adventurous remain the same.
Sources: LGT Vestra and 7IM