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Discretionary Management Service
Monthly investment review
November 2016
Balanced
Month in review – May 2017
Markets
A constructive month for equities and bonds, with overseas assets boosted by
a weaker GBP.
In GBP terms, equities gained across the main regions, with Europe leading,
gaining +5.25%. US equities were the laggards, gaining +1.84%, followed by
emerging markets at +2.71%.
UK equities gained +4.58% and weaker GBP flattered returns in Japan (+3.30%).
Bonds continued to rally modestly, with UK corporates gaining +1.28% and
Gilts gaining +0.45%. European government bonds gained +0.62% while US
government bonds gained +0.60%.
GBP reversed course against main currencies, weakening -3.54% against
a strengthening Euro, -1.10% against JPY, and -0.47% against USD.
Oil declined a further -2.05%, and gold fell a modest -0.02%.
Economic
developments
US Q1 GDP was revised up to 2% from 1.9%, while the UK GDP was revised
down to 2% from 2.1%. Chinese nominal GDP data showed a strong acceleration
in Q1 to 11.8%.
US headline inflation continued to pull back in April, but remained strong at 2.2%.
In Europe inflation accelerated to 1.8% in April, only to slow to 1.4% in May. The
UK consumer price index accelerated further to 2.7%, and Japanese inflation
firmed to 0.4%.
Purchasing managers’ indices (PMIs) were above the expansionary 50 reading
in all key regions except China. May composite measures strengthened in Japan
and the US (53.4 and 53.6 respectively), while the UK weakened modestly (54.4).
While the composite measure for China accelerated to 51.5, the Manufacturing
component slowed to 49.6.
Investment
outlook
Our investment strategy continues to view risk assets favourably, particularly
equities where we remain overweight. However, with risk assets having run hard
this year, we have slightly trimmed our exposure. This time of year is historically a
weaker patch for share prices, and volatility (a measure of investor fear) remains
unusually low.
We are also using this time to make a number of research trips to get a better
bottom-up view of economic and earnings trajectories.
As multi-asset class investors, we remain well-diversified across asset classes,
regions and sectors. Given the uplift in global GDP and earnings growth, we are
positioned to benefit from a recovery in earnings, balanced with volatility-reducing
assets should sentiment deteriorate.
Portfolio
commentary
Two industrial companies called GKN and Valeo have been added to the portfolio
in the month of May. GKN manufactures advanced vehicle and component parts
for both civil and defence engineering industries. With a global footprint, revenues
of £9.4bn, and market-leading competitive positions in several key areas, our
view is that GKN can deliver substantial earnings growth. The company is likely
to benefit from a management focussed on delivering tangible cost savings,
economies of scale and an upswing in the global defence cycle.
Valeo is based in France and manufactures car components specialising in driving
assistance, thermal, powertrain and visibility systems. This company plays into
the theme of increased automation in vehicles where trends to move to electricity
powered systems should fuel revenue growth and profitability over the coming
years.
We have increased the portfolio’s exposure to Europe by investing in the Barings
Europe Select Fund. The Fund invests predominantly in smaller companies across
Europe where many political headwinds have now subsided which is likely to help
improve the economic environment and encourage further investment. The Fund
has a strong performance track record, regularly outperforming the IA European
Smaller Companies sector.
Several holdings have been trimmed over the month such as the JP Morgan US
Equity Fund, the Henderson Global Technology Fund and Siemens to lock in
profits and free up cash to invest in opportunities elsewhere.
Important Information
The information contained in this document is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future returns. The value of
investments will go up and down and clients may get back less than invested. Opinions constitute our judgment as at the date shown and are subject to change without notice.
This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are
provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.
Close Brothers Asset Management is a trading name of Close Asset Management Limited and Close Asset Management (UK) Limited. Both companies are part of Close
Brothers Group plc, are registered in England and Wales and are authorised by the Financial Conduct Authority. Registered office: 10 Crown Place, London EC2A 4FT. VAT
CBAM4199 DMS Monthly Newsletter – Balanced May 17. EXP 30.06.17
registration number: 245 5013 86.