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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.