Please find below our weekly Investment Snapshot for the week ending 27th April 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Just over a month ago, an interest rate rise for the UK in May of this year almost seemed a certainty. However, last week’s weaker-than-expected inflation figures sparked debate over whether a rate rise in May is too soon. Now, a release of preliminary data this week, from the ONS, has shown that the UK economy grew by much less than anticipated in the first quarter of 2018, expanding by 0.1% compared to the previous quarter. The data is much lower than the forecasted 0.3%, and is actually the slowest rate of growth for the UK in one quarter since the final three months of 2012. This has been labelled as the ‘final nail in the coffin’ for a rate rise next month by senior UK economist Paul Hollingsworth, whose opinion is sure to be mirrored by Bank of England Governor Mark Cairney, who has already set a cautious tone over a May rate rise because of the softer economic data. Sterling, whose performance this year has been remarkable, took a heavy hit following on from the release of the data, sinking 0.9% on the day to $1.3794. This leaves the UK currency at its weakest point in almost two months, although the drop has been exacerbated by a resurgence in the US dollar.
The dollar index, which monitors the US currency’s value against a selection of other major currencies, is now up 2.4% since mid-April to reach its highest level since early January. Meanwhile, the euro continues to fall in the wake of the latest European Central Bank conference, which delivered a note of caution over its future economic prospects, mainly for the continent’s stance over the eventual tapering of its quantitative easing program.
In regard to Asian markets, which have been relatively subdued over recent months, things are looking positive after the leaders of North & South Korea made a joint announcement to officially end the Korean War, 68 years after it begun. Kim Jong-Un became the first North Korean leader to cross the Korean border since the 1950-1953 conflict, and shared a historic handshake with South Korean President Moon Jae-In. This portrays a great symbol of progress, and although many believe there is still a long way to go in terms of nuclear disarmament and political peace, Asian financial markets have responded well to the news. All major bourses in the region were in positive territory during early trading on Thursday, with the Hang Seng Index the best performer up 0.8%as energy stocks jumped 3.1% and technology stocks added 1.5%. In Japan, the Nikkei was up 0.66% on the day, and the Korean ‘Kospi’ index was up 0.6%.
Gary’s market comments in conjunction with our investment partners
In Q1, LGT Vestra’s Balanced portfolio was down only 3.04%, whilst the FTSE 100 was down over 7.20%. Of particular interest, is that if you split out the performance into asset classes you can see that Vestra’s Fixed Income allocation was down 0.87%, their Equity allocation was down 4.77% and their Absolute Return allocation was up 0.69%. This is exactly the reason for holding these Absolute Return funds and yet again, it has proven itself to be a true diversifier of returns over time. Not only does this keep volatility down but also puts LGT in a good position to take advantage of the recent dip, which they have done by increasing exposure to UK Equities.
The UK, US and European 7IM Equity Value Funds (ECF), which sit in many of the firm’s risk rated portfolios, as well as being distributed as region specific funds, turned three years old this month. The celebrations sees the UK fund benefitting from its focus on traditional value stocks, the US from its underweight in the technology sector and the European (ex UK) fund seeing performance driven from across all the strategy’s model components, with value stocks continuing to perform well.
Sources: LGT Vestra and 7IM