A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Gary’s Market Comment
UK WAGE SQUEEZE
The Bank of England’s view that households are set to suffer, with inflation outpacing wage growth, was confirmed by a Chartered Institute of Personnel and Development survey that believes wages will rise by an average of 1% this year despite inflation currently coming in at 2.3%. Brexit is the main reason for the reluctance by employers to pay people more, and the wage figure is at its lowest level for three years, down from the 1.5% view by the same survey just three months ago. There was some good news though in that employment confidence remains positive, with the manufacturing and production sectors in particular proving buoyant.
Updates from our Investment Partners
Absolute return funds are often criticised as being dull…. and sometimes they are. However, there are times when ‘dull’ is good as stock-markets of course, don’t always rise! Basically, Absolute Return funds can be seen as shock absorbers should markets experience a correction. The volatility across most indices is markedly low. The Vix index which measures volatility around US equities closed at a 23 year low last week.
With all the changes we have experienced around geo-politics, this is somewhat surprising. It’s comforting to know that LGT Vestra portfolios have substantial holdings of Absolute Return funds to protect on the downside.
7IM added a third infrastructure fund to its Personal Injury, Cautious and Unconstrained Funds last week. While bonds have delivered good returns in recent years, cautious investors face issues in a low interest rate environment when bond income isn’t there. For us, infrastructure investment companies can be part of a solution as they can still offer interesting returns while limiting overall portfolio volatility. We like the long term, steady cash flows that they can offer, as well as the high degree of inflation linking, low economic market sensitivity, and their backing by the public sector. Recent fund-raisings in the sector also provided us with good entry points.
Sources: LGT Vestra and 7IM