Global Investment Update – February 2019

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

George Bell, Investment Analyst, is joined by Barney Hawkins, Investment Director, to discuss the latest Markets and True Potential Portfolios performance.

Welcome to the February review of the True Potential Portfolios and financial markets. My name is George Bell, an investment analyst here at True Potential and I’m delighted to be joined today by our investment director Barney Hawkins.

Barney, a strong start to year after what was a difficult end to 2018 within global markets. What’s been driving this?

In the final quarter of last year confidence and sentiment played a large part in the weakness that we saw. So far in 2019 investors have reverted to the traditional metrics, looking at fundamentals and valuations. The pullback last year provided several opportunities for managers to pick up ‘cheap’ assets with valuations in several countries dropping below their long term average.

Central bank policy is an interesting one and the Federal Reserve have been under the spotlight for some time, why is this?

The US as an economy is a key contributor to global growth and controls around economic and monetary policy are ultimately dictated by the Federal Reserve. While interest rates around the world have generally remained low, the Fed have raised rates nine times since 2015, and there is a fear that this action could come back to hurt economic expansion, hence the spotlight.

In December the Fed left interest rates unchanged and, in a change of direction, signalled that they weren’t automatically looking to continue raising interest rates through 2019. This dovish U-turn was welcomed by the markets and has been a key driver of the strong investment returns we’ve seen so far this year.

Looking ahead, a rate rise in March is unlikely but most of our managers feel that inflation will gradually pick up and we’re likely see a rate rise in the States at the back end of this year.

Ok, so concerns appear to have eased but have all those risks gone away?

No, the risks haven’t gone away. Brexit, US/China relations, slowing growth in Europe and China and the potential for a policy error from the Federal Reserve are all still very much at the forefront investors’ minds. These risks matter a great deal if you don’t have the high levels of portfolio diversification which we offer. It is also important to understand that stock markets have already factored in a lot of these risks into current market pricing.

What are you seeing here in the UK?

Within the UK, Brexit is dominating the political landscape right now. Although clearly very emotional for both Brexiteers and remainers, the focus on the investment side has been very much UK-centric, and hasn’t really affected global markets. The view from our managers is that some sort of deal will take place: what form this will take is very difficult to see.

Looking beyond politics and focusing on fundamentals our managers generally agree that UK equities look incredibly good value. As to whether now is a buying opportunity, some are holding off waiting for more visibility on Brexit, whilst others are looking to invest, pointing out that the multi national companies in the FTSE 100 derive over 70% of their earnings from overseas sources, making it more of a global index. In contrast some of our managers are favouring the more domestically orientated Mid cap companies of the FTSE 250 which represent a more UK focussed approach, less affected by currency movements.

Taking all of this into account, what changes, if any, have been made to the portfolios?

At the recent rebalancing meeting, we discussed what the optimum allocations for each fund manager style were. We made changes to the Cautious, Cautious Income and Balanced Income portfolios. We increased allocations to the True Potential Allianz and Close Brothers Cautious Income funds whilst allocations to the True Potential SEI, UBS and Goldman Sachs Income Builder fund ranges were reduced.

These adjustments are primarily to reduce non-sterling asset exposure, to help insulate the portfolio against currency risk and they should also diversify the income stream in the two income portfolios. 

A useful recap Barney, what do you see as the key opportunities moving forward?

Global growth is slowing but we remain constructive on equities. Central bank policy remains relaxed and has given the markets room to breathe. Our managers remain positive on equities overall, especially around emerging markets as trade tensions with the US ease, and the US dollar drifts back.

Thanks Barney. So overall some strong numbers to kick the year off following easing global pressures, with managers demonstrating their ability to exploit the opportunities created. Those risks, although receding, continue to simmer in the background and therefore as always, diversification remains key.  

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Global Markets