Investment Report – August 2016

OVERVIEW

August was a benign month for investors with markets making steady, modest, upward progress. Thus the FT 100 share index put on +1.8% whilst the global market index gained +1.5%. Equities have generally been well supported as investors were attracted by anything that pays a decent income.

Asia and the Emerging Markets were strong as investors searched for decent yields in these regions to augment the lower yields available on European and US equities.

Gilts and corporate bonds put in another super month gaining +2.7% and +3.1% respectively as yields dropped further in the UK.

Commercial property staged a comeback with average values increasing by +0.6%. This reflected the fact that managers started to unwind the discounts applied to property values post-Brexit as the market steadied.

 

Here is the chart of the FTSE 100 index for the last six months:

 

…and the last five years, which puts this into perspective;

 

FUND PERFORMANCE

We enclose tables showing the performance of the portfolios over various time periods to the end of August;

 

Short-term Performance

Long-term Performance

(Source; Parmenion Capital Partners LLP)

 

PORTFOLIO REVIEW

 

All Portfolios

All portfolios made further gains in August, building on the strong returns made in July.

 

Income Portfolio

The Income Portfolio gained +2.0% in August out-performing the benchmark (the average mixed investment (20-60% shares) fund) which gained +1.7%. Our exposure to UK smaller companies boosted returns as this sector of the market recovered, but commercial property, whilst demonstrating a recovery, grew by less than the market and thus held us back a little.

We sold a high yielding UK fund run by Schroders and switched into a long-term favourite – the Newton Global Income fund, thinking that growth prospects have been set back in the UK due to Brexit.

 

Balanced Portfolio

The Balanced Portfolio gained +1.9% in August, just out-performing the benchmark (the average mixed investment (40-80% shares) fund) which gained +1.8%.

Our exposure to UK smaller companies boosted returns as this sector of the market recovered, but commercial property, whilst demonstrating a recovery, grew by less than the market and thus held us back a little.

We sold a growth fund run by Schroders which has a recovery focus and switched into a global tracker – the Vanguard Developed World X UK Equity Index, thinking that a recovery focus was now inappropriate for a UK investment post Brexit.

 

Tactical Portfolio

The Tactical Portfolio gained +2.1% in August, out-performing the benchmark (the average Flexible fund) which gained +1.5%.

The portfolio did well due to our heavy exposure to UK smaller companies and benefited as this sector of the UK market recovered.

We sold a growth fund run by Schroders which has a recovery focus and switched into a global tracker – the Vanguard Developed World X UK Equity Index, thinking that a recovery focus was now inappropriate for a UK investment post Brexit.

 

OUTLOOK

There has been a very nice recovery is asset values as yields in the developed world fell. Now one third of all the Government debt issued globally trades at a negative yield – a really bizarre situation. This means that the borrower (ie the Government in question) is paid to borrow money. The lender pays interest to lend.

We are of the opinion that at some point this peculiarity will reverse, which will mean that the long upward march in the value of fixed-income securities will cease and we will face an investment world where a significant proportion of client portfolios steadily fall in value instead of appreciating. We use many fixed income managers who have the tools to mitigate this risk.

There is a good chance that this reversal has started in the first week in September, but time will tell.

PS Don’t forget the usual risk warning for all long-term investments: “The value of units can fall as well as rise, and past performance is no guarantee of future performance. The value of income payments from investment funds is not guaranteed and can fall as well as rise”.