Global Market Overview
Global equity markets continued to move higher in November. Trade negotiations between the US and China seem to have been constructive with no further escalation in tariffs. Developed market equities outperformed emerging market equities with the S&P 500 achieving the highest return. The best performing sub-market was the FTSE 250 which outperformed the FTSE 100 as hopes started to rise of a Conservative majority in the General Election. With investors favouring equities, bonds yields moved higher (prices fell).
Market Returns Summary
Source: FE Analytics. Europe: FTSE World Europe ex UK, Asia ex Japan: MSCI AC Asia ex Japan, Japan: TSE TOPIX, Emerging Markets: MSCI Emerging Markets, Gilts: FTSE Actuaries UK Conventional Gilts All Stocks, UK Corporate Bonds: IBOXX UK Sterling Non-Gilts All Maturities, US Treasuries: ICE BofAML US Treasury, Property: IA UK Direct Property, Oil Price: Brent Crude. All indices are total return in currency indicated.
Past performance is not an indicator of current and future results. Data as at 31st October 2019.
*In the Euro Area, the main refinancing rate is 0 and the deposit rate is -0.5 percent
- The only major Central Bank to hold a meeting in November was the UK which kept rates on hold.
- US economic and employment data is holding up well with an estimated increase in the pace of GDP growth.
- Christine Lagarde took up the reins as president of the European Central Bank. In her first speech she urged European governments to boost public investment to increase domestic demand.
- In the UK with all eyes on the impending General Election and the Conservative party leading in the polls, domestically-focused areas of the market performed very well and sterling continued to recover.
- Markets sensitive to the US dollar strength lagged, most notably in Latin America.
- China continues to slow with the ongoing protests in Hong Kong continuing to hinder the economy.
Performance of RPW Models over one month to 30th November 2019
All models rose in value over the course of November. The RPW Adventurous model achieved a return of 3.74%. This was followed by the RPW Moderately Adventurous model which advanced 2.63%. The RPW Balanced model rose 1.91%, the Moderately Cautious model by 1.05% and the Cautious model by 0.53%.
Performance of RPW Models over three months to 30th November 2019
Over the past three months, all models have increased in value. The RPW Adventurous model rose by 3.20%. This was followed by the RPW Moderately Adventurous model which advanced 2.21%. The RPW Balanced model rose 1.61%, the Moderately Cautious model by 0.78% and the Cautious model by 0.20%.
Performance of RPW Models over one year to 30th November 2019
Over one year, all models have generated a positive return. The best performer was the RPW Adventurous model which rose 13.16%. The RPW Moderately Adventurous model generated a return of 10.53%, the Balanced model rose 9.07%, the Moderately Cautious model was up 7.79% and the Cautious model rose 5.77%.
(Source: Financial Express Analytics, Total return, gross of fees, as at 30th September 2019).
Please note that these figures are unaudited and indicative. The performance of actual client portfolios may be different. The effect of fees will reduce the returns achieved.
Although the UK General Election had not yet taken place by the end of November, the polls suggesting a Conservative majority boosted the performance of the UK stock market. As a result, the best performing funds over the month were those exposed to small and mid-cap UK companies. TB Amati UK Smaller Companies fund rose 6.01% whilst Man GLG Undervalued Assets which invests across the market capitalisation spectrum generated a return of 5.17%, outperforming the FTSE 250 index which achieved a return of 4.38%. Meanwhile the iShares 100 UK Equity Index performed relatively poorly with a return of 2.79%. Outside of the UK, Fidelity Index US did well, posting a return of 4.45% and Blackrock European Dynamic continued its strong run achieving a return of 4.27%. The laggards consisted of those funds exposed to Emerging Markets with Baillie Gifford Pacific ending the month with a modest 0.07% rise.
Just after the end of the month, direct property funds came under scrutiny with the suspension of the M&G Property Portfolio on 4th December after a sustained period of outflows. This fund has a high weighting to retail properties which are bearing the brunt of sector disruption from the shift in spending from the high street to online. The fund held across RPW model portfolios is L&G Property fund which appears to be holding up reasonably well. It has maintained a higher than usual cash weighting of circa 25% for some time with the managers noting the need to ensure the fund remains liquid. In November the fund was flat with a return of 0.03%. This compares to a decline of 0.24% in the IA UK Direct Property Sector.
In a month where equities were positive, it is not too surprising that bonds fared less well. The iShares Corporate Bond rose 0.19% with the L&G Sterling Corporate Bond index just about holding its value with a 0.03% return. The L&G index does not have any exposure to the lowest rank of investment grade so did not benefit from exposure to areas of the market deemed to be more risky. The Allianz Gilt Yield fund declined 0.34%.
After a negative year in 2018, largely driven by a major sell-off in the fourth quarter, this year looks on course to end with investors having enjoyed double digit returns across all equity markets. Although growth has moderated across the globe, fears of a recession have receded as Central Banks have reverted to an accommodative stance on interest rates. Markets have also been buoyed by potential for progress on a trade deal between the US and China and there are tentative signs that growth may be starting to reaccelerate. Political uncertainty in the UK has abated with the Conservatives winning their largest majority since Margaret Thatcher in 1987 and the Brexit deadlock has been broken. With the fixed term parliament act still in place this means that the political landscape here looks much more stable for the foreseeable future than the turmoil of the last few years.
Market pricing seems to be reflecting quite an optimistic outlook for 2020 with equity valuations now close to their long-run averages or in the case of the US, higher.
Many risks, however, remain. The trade negotiations between the US and China still have plenty of room to stall or fail with a knock-on effect to already weak economic growth and levels of corporate and consumer debt remain elevated in many countries. Although the UK has voted in favour of capitalism and rejected the populist, ultra left-wing agenda of Corbyn and O’Donnell there is still a risk that a trade deal cannot be agreed with the EU by the end of 2020 and a stronger currency impacts the overseas earnings of the multinationals that dominate the FTSE 100 and makes exports less competitive. Finally, with interest rates still very low or negative in developed countries Central Banks have limited scope to stimulate their economies through monetary policy alone.
Regionally the US continues to look expensive relative to the rest of the world and political risks remain given that there is a presidential election next year. Since global stock markets peaked in October 2007, they have underperformed the S&P 500 by more than 60%. In particular Asia and Emerging Markets have borne the brunt of concerns about global trade. Could 2020 be the year when the rest of the world catches up?
Investors should continue to maintain diversified portfolios with a blend of defensive and more risky investments. A disciplined approach to asset allocation and identifying good active managers who can navigate these conditions successfully remains of the utmost importance.
16th December 2019