Man reading newspaper

Welcome to our latest investment commentary covering the first quarter of 2019. This update provides some more in-depth commentary on the markets and our views moving forward.

We have seen a dramatic turn in sentiment since the final quarter of last year. Sentiment had become extremely negative and as we had noted in our previous commentary in January, we were expecting a better start to the year.

We think it is fair to say the recovery has exceeded most expectations. Many of the factors that were negatively impacting the markets last year have eased and the rapid change in the stance of the US Federal Reserve (Fed) is of particular importance. As of 16th April 2019, the portfolio returns for this year are as follows:

  • Defensive Income +6.9%
  • Income  +8.9%
  • Cautious  +7.7%
  • Balanced  +8.3%
  • Growth  + 10.9%
  • Unfettered  +11.2%

This update note is timely since we have recently held our quarterly investment committee meeting, where we were joined by Shrenick Shah, manager of the £1.5 billion JP Morgan Global Macro Opportunities fund, in which we are investors. He echoed many of our views and feels we could yet see higher equity markets.

Volatility has disappeared for now but again, it is never far from the surface and could reappear again during the year. We have made a few changes this year to help defend against this, which we will cover off later in this note.

Q1 2019 REVIEW

Q1 has been a case of the worst performers during the final stages of 2018, being the best performers this year. Growth assets, in particular, have bounced back strongly.

The US Fed has undertaken a fantastic U-turn in its policy approach, where they are now signalling no interest hikes this year and potentially only one in 2020. The markets believe we may even see a rate cut over this time. In the final quarter of 2018, their intention was to raise interest rates up to four times in 2019 alone! We believe they have acknowledged that markets are not prepared for this, given the extreme reaction seen last year, and that US growth is gradually slowing and inflation has been steady. Furthermore, they have also signalled a slowdown in the reduction of their balance sheet, which again has helped market sentiment this year. We find it difficult to see the Fed embarking on raising interest rates over the near term, which should bode well for risk assets.

The ongoing trade tensions between the US and China have also been a key focus area for the markets. However, rhetoric has certainly improved since last year and the signs are that we are approaching a deal. The Chinese equity markets have risen over 30% this year in part due to this. We feel a deal on trade is the easy part; agreeing on the way forward with regard to intellectual property is a significant challenge. The Chinese have made it clear that they want to be the world leaders in a number of advanced technological fields, presenting a direct challenge to the US. It is, therefore, no surprise that Huawei, the world’s leading 5G technology provider, has been attacked by the US given its Chinese roots. We, therefore, feel some risks remain here.

Although it continues to remain an unknown, it is worth making some mention of the Brexit process. Parliament has tried to wrestle control away from the Government, but have made it clear that they cannot agree on any one path forward and we have since passed the original deadline of 29th March. The EU has agreed to an extension to the deadline, but whether this is a positive or not remains to be seen. The extension does prolong the uncertainty relating to Brexit, potentially further impacting business sentiment and activity.


At this stage, 2019 is turning out to be a better year than expected. The trade tensions appear as though they may fade, but the actions so far have damaged corporate sentiment and we feel we are yet to see the full effects on corporate earnings. In China, this has been offset somewhat by the central bank stepping in and injecting some stimulus into the system.

Our view on US corporate earnings hasn’t changed. US companies have enjoyed very strong earnings growth over 2018 due to the favourable US economic backdrop and the tax breaks offered by the Trump administration. However, the effects of these are fading and we are unlikely to see any further tax cuts due to the outcome of the midterm elections, where the Republicans no longer have control of both houses. We are therefore likely to see positive but slightly weaker US earnings growth this year.

As mentioned in our previous commentary, US growth is now starting to slow. This has caught the Fed’s attention and is one of the factors behind them changing course at the start of this year. Global growth continues to slow, but there haS been some more positive data coming from China recently, possibly suggesting that the slowdown is coming to an end.

With the Brexit process now being extended, the uncertainty will continue. The likelihood of a no deal is small and so UK assets are starting to see some flows back in, given the attractive valuations, supporting our position to increase our UK equity exposure where possible a few months back.


We have been busy this quarter, making two sets of changes to our portfolios. We have summarised these below:

February 2019 – We made changes to all six of the portfolios we manage, with the key theme being the addition of infrastructure funds and in some cases, another UK equity fund.

Infrastructure is an asset class we held from 2012 to 2018, which did very well for us and we felt we needed to take profits on. The change in the US Fed’s stance now means that infrastructure has become attractive again. We purchased UK infrastructure funds for the Income and Defensive Income portfolios and a global infrastructure index for the remaining portfolios. The sector provides an additional benefit of being quite defensive during difficult market conditions.

UK equities are some of the most unloved assets globally, for obvious reasons. Valuations were looking very attractive on a longer-term view and the sense is that a no deal Brexit was not very likely. We, therefore, decided to increase our exposure to the UK where possible, to a fund that typically invests in larger companies that are trading at a discount.

A full account of the changes can be found below:

Portfolio Sold / Reduced (R) Bought / Added to
Defensive Income 7iM European Equity Value

Artemis Monthly Distribution

Baillie Gifford Japanese Inc Growth

Foresight UK Infrastructure

Guinness Global Equity Income

Man GLG UK Income

Income Premier Multi-Asset Monthly Inc

7iM European Equity Value (R)

First Trust US Equity Income ETF (R)

Baillie Gifford Japanese Inc Growth (R)

Foresight UK Infrastructure

Man GLG UK Income

Cautious Polar Capital Global Convertibles

7iM European Equity Value (R)

Invesco Global ex UK Enhanced Ind (R)

Kames Global Sustainable Equity (R)

JP Morgan Global Macro

L&G Global Infrastructure Index

Balanced 7iM European Equity Value (R)

iShares Core MSCI Japan IMI ETF (R)

Invesco Global ex UK Enhanced Ind (R)

L&G Global Infrastructure Index
Growth Lyxor MSCI World Financials ETF

Merian UK Mid Cap (R)

7iM European Equity Value (R)

Baillie Gifford Japanese Smaller Cos (R)

SL Global ex UK Smaller Companies (R)

L&G Global Infrastructure Index

Man GLG UK Income

Unfettered Lyxor MSCI World Financials ETF

Slater Growth

Jupiter European (R)

Baillie Gifford Japanese Smaller Cos (R)

SL Europe ex UK Smaller Companies (R)

L&G Global Infrastructure Index

Man GLG UK Income


March 2019 – We made changes to four of the six portfolios we manage; Cautious, Balanced, Growth & Unfettered. The key theme here was the introduction of Gold. Gold has had a tough time since it hit all-time highs in 2011, but we feel the factors that have held it back are now easing. Gold can act as a good diversifier in portfolios and we have purchased physical Gold in the Cautious and Balanced portfolios. The Gold miners are very volatile and so we have preserved exposure to these via the Growth & Unfettered portfolios. A full account of the changes can be found below:


Portfolio Sold / Reduced (R) Bought / Added to
Cautious Invesco Global ex UK Enhanced Index

Cash (R)

ETFS Physical Gold ETF

Atlantic House Defined Returns

TwentyFour Dynamic Bond

TwentyFour Monument Bond

Balanced Cash (R) ETFS Physical Gold ETF
Growth SL Europe ex UK Smaller Companies

Polar Capital Global Convertibles (R)

iShares Gold Producers ETF
Unfettered Baillie Gifford Japanese Smaller Cos

SL Europe ex UK Smaller Companies

iShares Gold Producers ETF


The start to the year has been strong, but some risks remain, and we have sought to diversify our risk by making a few changes this year as noted below. We feel there is now better balance in the portfolios to help navigate any further volatility we may see.

We hope you find this review informative and look forward to hearing from you if you have any questions.