A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
This month the Eurozone continues its robust run, as employment growth and consumer confidence hit 17-year highs. Unemployment fell to 8.8% in October – at its lowest since January 2009. These levels were reached even with the current strength of the Euro. Recent findings also show that the inflation rate is beginning progress, rising to 1.5%, after a few years of the ECB struggling to achieve its target of just under 2%. The seemingly relentless growth Europe is experiencing comes after the EU dodged a few potentially calamitous political situations – the unexpected victory of Macron in the French elections and of course, the failed Catalan uprising – and the mood remains upbeat. Meanwhile, the difficulties regarding the formation of a coalition government in Germany have not (yet) generated any serious concern.
Following on from the UK’s GDP growth being revised down again in the Autumn budget, and since long-term investments are drying up through uncertainty over Brexit, the government are being proactive to “boost the productivity and earning power of people throughout the UK”. This is the foundation of its new Industrial Strategy, which focuses on four sectors where it believes the UK can take a lead. However, the approach has drawn some scepticism, given the track records of similar government strategies in the past. Despite all of this, Theresa May reluctantly signed off the £50bn ‘Brexit Bill’ this week, which allows the door for trade negotiations to be opened. This has seen the pound surge against the dollar and on Thursday morning, it was up 0.48% at $1.34740.
Gary’s market comments in conjunction with our investment partners
LGT Vestra look at the world from an international macroeconomic perspective and as the bull market has charged onwards, within the model portfolios they have purposefully segregated a portion of the portfolio within the equity bucket, and have labelled it as ‘global’ exposure. The funds that sit in this sleeve of the portfolio are unconstrained by geography, much like the companies themselves in an ever more globalised market place. There are currently five funds within the portfolio, ranging from Fundsmith, a defensive large-cap global equity fund, to L&G Global Technology Index Trust, a passive fund that tracks the largest technology companies in the world. Year-to-date, the L&G fund is up 28%, while the four other funds have returned 18%+.
7IM has made the decision to increase their weighting of the FTSE 100 portfolio holdings across all risk profiles. This has allowed them to:
- Allocate more money to global equity markets at valuation levels lower than through individual international markets, given the continued synchronised global growth
- Support portfolios should the value of Sterling fall back following its recent period of strength
- Express a view on potential foreign exchange moves while leaving existing currency positions unchanged
These allocations came at the expense of Gold and European equities.
Sources: LGT Vestra and 7IM