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

The positive sentiment seen earlier this year has generally continued during the second quarter. The recovery continues to exceed expectations and we are aware that many of our peers became overly cautious at the end of 2018 and have been holding very high levels of cash as the markets have recovered. We are pleased to say we are not in that group and have maintained a healthy level of exposure to the markets in a broader range of assets that have done well.

As of 4th July 2019, the portfolio returns for this year are as follows:

• Defensive Income +8.9%
• Income +11.5%
• Cautious +10.7%
• Balanced +12.0%
• Growth + 15.4%
• Unfettered +16.9%

Volatility has remained fairly muted, although it is never far from the surface and we continue to feel it could reappear again during the year. We have made no changes to five of the six portfolios over the quarter, however, we are likely to make some changes in the next few weeks.

Q2 2019 REVIEW

Q2 has been much of the same from Q1, in that the worst performers during the final stages of 2018, have turned out to be the best performers this year. Growth assets, in particular, have bounced back strongly. An area that has surprised many is the rally in Government bonds, which was the least expected outcome this year. Government bond yields are currently sitting at very low levels again. German Government bonds, Bunds, are at their lowest ever levels. Whilst the buoyant equity markets suggest a degree of optimism, the low bond yields are more indicative of caution.

The US Federal Reserve (The Fed) has come forward to indicate that they are willing to cut interest rates as early as this month. This has been positive for both the equity and bond markets, creating the catalyst for the strong returns we are seeing this year. The markets are however pricing in a cut of 0.33% this month, which seems ambitious. If the Fed do cut, it is more likely to be a 0.25% reduction which will not be as favourable to the markets and so we may see some volatility later this month. The future interest rate path by the Fed will be very important for the direction of the markets over the coming six to twelve months.

Their stance will also impact other central banks across the world, who tend to follow the Fed. A softer or more dovish stance from the Fed will be positive for risk assets globally.
Clearly, the cloud that hangs above this is the trade spat between the US and China. The signal from the G20 summit is that they have agreed to begin talks again, although the detail that has followed has been obscure. We continue to believe that an agreement around intellectual property is a significant challenge and is likely to be a contentious issue for years to come. A possible outcome from the stance of the US is that China and many other global powers will want to reduce their reliance on the US so that any future US pressure will be less effective.

There is some consensus that even if a deal is made on trade, some damage has already been done to the global economy and we are seeing some evidence of this in weaker economic data in the US. Global growth could slow further this year if a trade deal is not made soon.

The Brexit uncertainty is having an additional impact on the UK economy, but the economic data is weaker. The political developments suggest that a no deal outcome is now more likely, which was not our base case. At this stage, it appears as though the only way to break the deadlock is for a no deal outcome to occur.
With this backdrop, it is very difficult to see how the Bank of England is going to follow through with their tough talk of raising interest rates, regardless of the Brexit outcome. It is far more likely that they will either hold or cut interest rates in the near term.


At this stage, 2019 has turned out to be a significantly better year than expected. The trade tensions have damaged corporate sentiment and investment and we feel we are yet to see the full effects on global growth. Despite China injecting some stimulus into the system, the economic data being seen is weakening again.

This uncertainty is likely to be offset somewhat by the more accommodative central banks, notably the Fed, which should help improve the economic numbers we are seeing over the next 12-24 months.
Our risk diversification measures taken earlier this year, such as the purchase of infrastructure and Gold, have both done very well for us so far. We will be making a few more changes in the coming week or two, to further enhance the balance in the portfolios and help navigate any further volatility we may see, this will include the sale of Japan in favour of Europe.


During the second quarter, we only made changes to one of the portfolios, this being the Defensive Income portfolio. We have summarised the changes below:
June 2019 – There was some uncertainty around the renewed trade tensions and what the G20 summit had in store. Given the unpredictable outcome and the defensive mandate of the portfolio, we took the decision to reduce the risk level.

This was expressed by selling one of our Asian equity holdings, which could be impacted by an escalation in the trade issues and a fund that invests in financial assets, that could be exposed to a further economic slowdown. The proceeds were used to add to some of our existing bond positions, which are defensive in nature.

A full account of the changes can be found below:

Portfolio Sold / Reduced (R) Added to
Defensive Income

Invesco Global Financial Capital

Schroder Asian Income

L&G Short Dated Sterling Bond

Royal London Short Duration Credit

Sanlam Strategic Bond


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