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Discretionary Management Service Monthly investment review November 2016 Ethical 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 Portfolio exposure to Europe has been increased by purchasing Electrolux, a global leader in household appliances. Demand from the European consumer is expected to pick up as economic conditions improve helping increase revenues and management’s focus on efficiency will enable the company to further increase the operating margin. There have been positive results across other regions; operating income in Latin America has recovered and profitability in North America and Asia has continued to rise. The Government has finally sold its share in Lloyds Banking Group and the PPI compensation claims are disappearing, removing two major headwinds. Group profits doubled in the first quarter to £1.3bn helped by an improvement in the net interest margin and we believe Lloyds is now in a strong financial position going forwards. The bank continues to build capital above that required by the regulator which we expect will be returned to shareholders in the form of dividends; the stock currently yields 5.5%. We have sold Dr Pepper Snapple Group as we have questioned the growth expectations of the recently acquired ‘Bai’ brand after slightly disappointing results and we have seen this as an opportunity to re-allocate funds away from the US to other regions such as Europe where companies are trading at cheaper valuations. 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 CBAM4206 DMS Monthly Newsletter – Ethical Balanced Jun 17. EXP 31.07.17 registration number: 245 5013 86.