Global Market Overview

After July’s positive returns, a traditional summer slump took place in August, across most markets, as investors took account of rising tensions between the US and the rest of the world. Most equity markets and risk assets sold off, with the exception of the US, where the S&P 500 surged 4.14% in sterling terms, returns once again being bolstered by a stronger US dollar. Year to date the US market has returned 13.98%. By contrast the FTSE 100 has declined by 0.18%.

In August, apart from the US, the only other market to close the month in positive territory was Japan with the Topix up 0.87%. The FTSE World Europe index declined 1.41% and the FTSE 100 by 3.29%. The MSCI Emerging Markets index fell 1.81%. Overall, the MSCI World advanced 2.17%, thanks to the fact that its largest constituent, accounting for over 60% of the index’ value, is the US.

The US economy continues to go from strength to strength across all sectors. Both business and consumer confidence are high with retails sales rising more than expected in July and the labour market remaining tight, whilst wage growth remains modest. The Federal reserve is likely to continue to raise rates gradually. There was no change in August, but the minutes of the meeting and other comments made by the Chairman, Jerome Powell, indicate that the Fed is still on track to raise rates by 0.25% each quarter.

In the UK, aside from the ongoing Brexit machinations, the Bank of England raised interest rates to 0.75% as anticipated. Further hikes seem unlikely until the outcome of Brexit negotiations is clearer. GDP growth for the second quarter was 1.5% on an annualised basis which was slightly lower than Bank of England forecasts, but inflation was also slightly lower than expected with July’s Consumer Price Index at 2.5% and core CPI at 1.9%, year on year. Sterling weakened versus both the US Dollar and the Euro.

In Europe, GDP for the second quarter has been revised upwards to 2.2% annualised with headline inflation at 2%. Core inflation remains very low at 1.0% year on year, which means that the European Central Bank is likely to remain an accommodative stance towards monetary policy. Most sentiment indicators improved in August but was offset by concerns about the new Italian government and their budget plans which caused the 10-year Italian government yield to spike to 3.2% and a sell-off in European equities.

After earlier travails, the Japanese economy appears to have stabilised with second quarter GDP growth coming in at 1%, annualised. Inflation currently remains low but wage growth at 3.6% year on year in June was at its highest level in over 20 years.

Trade tensions and a potential balance of payments crisis in Turkey triggered a sell-off in Emerging Market assets in August which has continued into September. Latin American equities underperformed, impacted by currency weakness, particularly in Brazil although the trade deal reached between Mexico and the US on 28th August struck a brighter note.

Against this backdrop, government bonds prices rose modestly as investors sought a safe haven.

Performance of RPW Models over one month to 31st August 2018

All RPW models ended the month in positive territory.

Performance of RPW Models Year to Date, to 31st August 2018

All RPW Models have made gains so far this year.

Performance of RPW Models over 1 Year to 31st August 2018

Over one year to 31st August 2018, the Adventurous model has returned 10.81% and the Cautious model 1.93%. (Source: Financial Express Analytics, Total return, Gross of fees, as at 31st August 2018).

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.

Funds Update

The best performing fund over the month was Old Mutual North American Equity which returned 5.79%, outperforming the S&P 500 index and the sector average.

Invesco Perpetual UK Strategic Income fund declined by 0.61% but its relative performance is starting to show promise after an extended period of underperformance. We recently met with manager Mark Barnett who was suitably contrite about the performance of his funds but who remains confident about the inherent value across the portfolio. The current key portfolio themes are UK Domestic Value (e.g. Next, Legal and General, Derwent London), International Growth Opportunities (e.g. BP, Royal Dutch Shell, easyJet), Tobacco and Non-Correlated Financials (e.g. Burford Capital, Hiscox, Randall & Quilter).

Pleasingly Aviva Strategic Bond has also started to show signs of improvement. With a return of 0.34% in August it was top quartile in the strategic bond sector and the top performing bond fund in our models


With the ten-year anniversary of the collapse of Lehman Brothers this September the press is full of articles about the legacy of the global financial crisis of 2007-2008 and the likely longevity of this bull market. It feels, at times, as though everyone is waiting for the next major market downturn and trying to identify the trigger. However so well flagged are these concerns that they must already be priced into markets, at least to some extent. Yes, technology shares are very expensive and have fuelled the US stock market and by extension global equity indices, but it does not feel as though the commercialisation of digital technology, which one fund manager we spoke with recently, identifies as having been the dominant theme driving markets in recent years, is a spent force.

Overall, the economic data suggests that the global economy is still growing above trend, albeit with some regional variation, and although there is little evidence of a direct correlation between GDP growth and equity markets, this should support corporate earnings globally. Official inflation figures are still reasonably subdued and although labour markets are tight, wage inflation is modest.

Volatility has increased this year and with it our anxiety about taking on market risk but we continue to remind ourselves that time in the market is what generates long term returns, not trying to time the market.


Volatility is likely to persist and 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.

13th September 2018

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