Q Investment Review

Transcription

1 Quarterly Q Investment Review In this issue: Foreword 2 Market outlook 3 Market backdrop 4 Performance and fund manager thoughts: MA Passive Fund range MA Active Fund range MA Blended Fund range Income Generating Fund range Specialist Fund range Architas important information 11

2 Foreword The Architas Quarterly Investment Review (QIR) is your guide to how Architas Funds have performed over the past quarter, how global, political and economic policy news has driven that performance and what it means for your investments. To highlight the unpredictability of markets, the table below details the performance of global equity and fixed income indices over the past five years (in sterling terms). This table demonstrates how volatile markets can be, and shows the benefits of diversifying your investment, or in other words, not putting all your eggs in one basket. Index percentage growth % UK shares ( All-Share Index) European shares ( Developed Europe ex. UK Index) US shares ( North America Index) Asian (but not Japanese) shares (MSCI Pacific ex. Japan Index) Japanese shares ( Japan Index) Emerging market shares ( Emerging Markets Index) UK government bonds (Citi UK Government Bond Index) UK corporate bonds (iboxx UK Non-Gilts Index) Global government bonds (Citi G7 Global Government Bond Index) Index-linked bonds ( Index-Linked All Stocks Index) High yield bonds (Barclays Pan Euro High Yield Bond Index) Cash (3-month LIBOR) Past performance is not a guide to future performance. Rebased in sterling where appropriate, i.e. all index returns are recalculated based on exchange rates to give returns for a sterling investor. Source: Morningstar Direct, January Page 2 Architas Quarterly Investment Review Q4 2017

3 Market outlook We believe the global economic growth outlook remains strong. The UK is a slight outlier due to Brexit uncertainties clouding the horizon, but most other regions look likely to continue enjoying the healthy economic backdrop. This has the potential to benefit global stockmarkets, provided companies can deliver continued earnings growth to support relatively high share prices in many markets. Central bank actions, in particular those of the US Federal Reserve, will remain a big focus. In the US, quantitative easing (where financial institutions are given access to cheap money) will gradually be reduced in Markets have become used to an environment where quantitative easing is prevalent. As this changes and particularly if it is reduced quicker than expected we believe there is the potential for increased market volatility (the rate of change up or down of asset prices). UK The economic outlook remains mixed, although optimism among British manufacturers is encouragingly buoyant. Brexit negotiations will continue to be one of the biggest factors for investors to watch. The fluctuating strength of the pound has the potential to impact financial markets. Europe We believe the economic picture is positive and that this should continue through Companies profit margins have been improving, with potential for further expansion in the future. Although stock prices have risen strongly in 2017, we think Europe remains good value compared to other regions. Emerging markets Encouraging global economic growth forecasts should continue to support stockmarkets. There is, however, a question mark over the longer-term future of Chinese economic expansion. Attractive investing opportunities exist across the distinctly different countries. US Corporate tax cuts could boost US equities, particularly domestic-focused companies. Healthy economic growth forecasts should justify future interest rate rises. We are cautious about how high stock prices have risen over a short period of time. Key: underweight neutral overweight Asia Pacific Encouraging economic conditions have the potential to support continued growth in company earnings. We are wary though of the pace at which the region s equity markets have climbed in When we are positive about an asset class we categorise them as overweight and may look to increase our allocation to this asset in our portfolios. Conversely when we are negative about an asset class we classify them as underweight and may reduce the allocation. Finally neutral means that we are not positive or negative. Japan Prime Minister Abe s recent re-election provides increased certainty. We like the investment environment, and think strong company earnings growth has the potential to support stockmarkets. We believe stock prices are still better value relative to other developed markets. Architas Quarterly Investment Review Q Page 3

4 Market backdrop The fourth quarter of the year was a strong period for sterling investors, with most asset classes delivering positive returns. One of the big stories of the quarter was President Trump s bid to significantly reduce US corporation tax, which was finally approved in late December. US equities were buoyed by this change, as it has the potential to boost company earnings, in the short term at least. On a global basis, economic growth has continued. This has seen some central banks slowly start to increase interest rates and reduce quantitative easing (where financial institutions have access to cheap money to try and spur growth). In the UK there was a small interest rate rise to try and curb rising inflation, the first increase in over 10 years. Q4 US share returns Japanese share returns European share returns If inflation accelerates quicker than expected, especially in the US, it could push central banks to increase interest rates faster than planned to try and keep inflation in check. Crowded trades pose a threat. This is where investors are concentrated in certain asset classes. We believe markets could become more volatile, and if prices dip in a popular sector it could cause a rush to sell. Geopolitical risks were largely ignored by investors in 2017, but 2018 could be different. We are already seeing rising tensions in the Middle East and this could become more of an issue for markets and investors during the year. MARKET THEMES Quantitative easing (QE) in the US, which has been present for a long time, has started to be very gradually reduced as economic growth takes hold. European equities had a poor quarter compared to the rest of the year. This was largely down to profit taking by investors, the political uncertainty of Germany s failure to form a coalition government and uncertainty in Spain over the move for independence in the Catalan region. 5.6% 7.9% 0.3% North America Index Japan Index AW Developed Europe Index UK share returns Asian (but not Japanese) share returns Emerging markets share returns 5.0% 6.2% 6.1% All-Share Index European high yield bonds MSCI Pacific ex. Japan Index UK corporate bonds Emerging Markets Index UK index-linked bonds 1.5% 1.8% 3.5% Barclays Pan Euro High Yield Bond Index UK government bonds Markit iboxx UK Non-Gilts Index Global government bonds 2.2% 0.1% Citi UK Government Bond Index Citi G7 Global Government Bond Index Index-Linked All Stocks Index The oil price has risen, hitting US$67 per barrel in December. Major oil-producing nations have agreed to restrict supplies through to the end of 2018, helping to support prices. Economic growth has continued to recover in many developed and emerging countries. UK corporate and government bonds have climbed steadily in Q4 having had more mixed performances the previous quarter. Past performance is not a guide to future performance. Rebased in sterling where appropriate, i.e. all index returns are recalculated based on exchange rates to give returns for a sterling investor. Source: Morningstar Direct, January CONCLUSION MOST GLOBAL STOCKMARKETS UP UK INFLATION UP MARKET VOLATILITY FLAT Investing conditions have been very calm, with volatility (the rate of change of asset prices up or down) remaining low. This is despite well-documented geopolitical risks continuing to pose a threat. The environment of low volatility and global economic growth has been positive for most riskier assets such as equities. For sterling investors, the fluctuating value of the pound has been an area to watch, as it can impact returns from overseas assets. Architas Quarterly Investment Review Q Page 5

5 Performance Architas MA Passive Fund range Passive Fund range performance versus Active and Blended ranges The fourth quarter of 2017 was a relatively strong period for all three fund ranges, with all risk profiles making gains. In each fund range, moving up the risk profiles provided increased returns, something that reflects the accommodative backdrop for investing in higher risk assets like equities. Comparing returns over the quarter, in the higher risk profiles the MA Passive and MA Active Fund ranges performances were broadly in line, with MA Blended marginally behind. At the lower end of the risk scale, the MA Passive Fund range led the way, followed by MA Blended, with MA Active slightly further back. Across the three fund ranges, two funds tied for top performer: the MA Passive Dynamic Fund and the MA Active Dynamic Fund. Portfolio changes n/a n/a Bought Sold Sheldon MacDonald Deputy Chief Investment Officer Alex Burn Investment Manager Architas MA Passive Fund range Following a volatile September for markets, the final quarter of the year was positive for UK investors across most asset classes. The quarter was full of political events which helped support this positivity. Markets in the US were buoyed by hopes that tax reform would pass through the Senate. Japanese equities, one of the top performing markets, hit record highs following the re-election of Prime Minister Abe. In line with the rest of the year, emerging markets again delivered strongly, supported by a number of political steps, such as the injection of capital into banks in India and hope of reform in South Africa. Returns in some equity markets were more disappointing however. Europe was flat, potentially the victim of some profit taking after a strong year. Additionally, there is increasing political concern after coalition talks in Germany faltered, while the Catalonia problem remains unresolved. Cumulative return Discrete yearly performance Fund and share class Total returns for the periods shown (%) 3 months 1 Oct 2017 to 1 year 3 years 5 years Architas MA Passive Reserve A Acc Architas MA Passive Moderate A Acc Architas MA Passive Intermediate A Acc Architas MA Passive Progressive A Acc Architas MA Passive Growth A Acc Architas MA Passive Dynamic A Acc Past performance is not a guide to future performance. The value of an investment, and any income, can fall as well as rise and is not guaranteed. You could get back less than you invested. Source: Morningstar Direct, January Performance as at 31 December Performance figures are shown in sterling unless we say otherwise. We work out return figures using a single pricing basis. The fund performance figures take into account the yearly management charge, but not any initial charge that may be due. Investing using a wrapper (a wrapper is an arrangement that brings together a range of investments under one roof) may also involve charges which will have the effect of reducing the past performance figures shown. Page 6 Architas Quarterly Investment Review Q4 2017

6 Architas MA Active Fund range Fund themes Asset allocation Japanese equities Asian (excluding Japan) equities Emerging market equities Specialist insurance assets Emerging market bonds in US$ Infrastructure Portfolio changes Bought Vontobel Emerging Markets Debt Fund Artemis US Extended Alpha Fund Baillie Gifford Japanese Fund Man GLG Japan CoreAlpha Fund TB Evenlode Income Fund Vanguard Japan UCITS ETF Hermes Global Emerging Markets Fund Fund selection Baillie Gifford Japanese Fund Hermes Asia Ex Japan Equity Fund Franklin UK Smaller Companies Fund CATCo Reinsurance Opportunities Fund Ltd BlackRock Global Funds Emerging Markets Bond Fund John Laing Infrastructure Fund Ltd Sold Fidelity MoneyBuilder Dividend Fund JPM US Equity Income Fund JPM US Select Equity Plus Fund Neuberger Berman Global Floating Rate Income Fund Neuberger Berman Global High Yield Bond Fund Schroder European Alpha Income Fund Nathan Sweeney Senior Investment Manager Architas MA Active Fund range The last quarter of the year was a good one for equity markets, with a strong rally into year end. We finally saw the implementation of tax changes in the US, which went through in late December. Given this happened right at the end of the year it did not receive a large amount of press coverage. However, it s important not to underestimate the impact this could have around the globe. Given the US is the major market in the world, a decision to significantly reduce corporation tax could cause other countries to revise their own tax policies, or risk losing business to the US. This should create a positive outcome for equities, as the possibility of corporate taxes being reduced globally would likely increase company profits. Each month in the last quarter of the year saw the S&P 500 index (a leading indicator of US equities) make gains, making it 12 out of 12 for the year in US dollar terms. Cumulative return Discrete yearly performance Fund and share class Total returns for the periods shown (%) 3 months 1 Oct 2017 to 1 year 3 years 5 years Architas MA Active Reserve A Acc 0.6 n/a 1.8 n/a 11.4 n/a 23.6 n/a Architas MA Active Moderate Income A Acc Architas MA Active Intermediate Income A Acc Architas MA Active Progressive A Acc Architas MA Active Growth A Acc Architas MA Active Dynamic A Acc Past performance is not a guide to future performance. The value of an investment, and any income, can fall as well as rise and is not guaranteed. You could get back less than you invested. Source: Morningstar Direct, January Performance as at 31 December Performance figures are shown in sterling unless we say otherwise. We work out return figures using a single pricing basis. The fund performance figures take into account the yearly management charge, but not any initial charge that may be due. Investing using a wrapper (a wrapper is an arrangement that brings together a range of investments under one roof) may also involve charges which will have the effect of reducing the past performance figures shown. The quartile ranking categorises funds within a sector into four equal bands based on their performance over a set period. 1 contains the best-performing funds and quartile 4 the worst performing. The Architas MA Active Moderate Income Fund sits in the IA Mixed Investment 0-35% Shares sector. The Architas MA Active Intermediate Income Fund sits in the IA Mixed Investment 20-60% Shares sector. The Architas MA Active Progressive Fund sits in the IA Mixed Investment 40-85% Shares sector. The Architas MA Active Growth and Dynamic Funds sit in the IA Flexible Investment sector. The Architas MA Active Reserve Fund sits in the IA Unclassified sector. Architas Quarterly Investment Review Q Page 7

7 Performance Architas MA Blended Fund range Fund themes Asset allocation Japanese equities UK government bonds (gilts) Asian (excluding Japan) equities European (excluding UK) equities Infrastructure Overseas government bonds Portfolio changes Bought Baillie Gifford Japanese Fund CATCo Reinsurance Opportunities Fund Ltd Kames Investment Grade Bond Fund TB Evenlode Income Fund TwentyFour Monument Bond Fund Fund selection Baillie Gifford Japanese Fund Vanguard UK Long Duration Gilt Index Fund ishares Edge S&P 500 Minimum Volatility UCITS ETF SYZ Oyster Continental European Selection Fund John Laing Infrastructure Fund Ltd ishares Overseas Government Bond Index Fund Sold AXA World Funds Emerging Markets Short Duration Bond Fund Kames Absolute Return Bond Fund Neuberger Berman Global Floating Rate Income Fund Sheldon MacDonald Deputy Chief Investment Officer Mayank Markanday Investment Manager Architas MA Blended Fund range Equity markets were strong in the final quarter of 2017, with a number of regional indices hitting record highs. In this risk-on environment, where many investors favour riskier assets such as stocks, Asian and emerging market equities led the way for UK investors. Some bond markets, particularly in the UK, were also relatively strong, despite rising inflation. Sentiment among equity investors was boosted by the much-debated US tax reforms. Lower corporate tax rates should help company earnings growth in the short term, although questions remain around the longer term. Inflation continues its slow recovery, a positive for companies as they are able to slowly raise prices. Although some central banks are gradually starting to withdraw quantitative easing (where financial institutions are given access to cheap money), monetary policy is actually still quite accommodative. Cumulative return Discrete yearly performance Fund and share class Total returns for the periods shown (%) 3 months 1 Oct 2017 to 1 year 3 years 5 years Architas MA Blended Reserve A Acc Architas MA Blended Moderate A Acc Architas MA Blended Intermediate A Acc Architas MA Blended Progressive A Acc Architas MA Blended Growth A Acc Past performance is not a guide to future performance. The value of an investment, and any income, can fall as well as rise and is not guaranteed. You could get back less than you invested. Source: Morningstar Direct, January Performance as at 31 December Performance figures are shown in sterling unless we say otherwise. We work out return figures using a single pricing basis. The fund performance figures take into account the yearly management charge, but not any initial charge that may be due. Investing using a wrapper (a wrapper is an arrangement that brings together a range of investments under one roof) may also involve charges which will have the effect of reducing the past performance figures shown. Page 8 Architas Quarterly Investment Review Q4 2017

8 Architas Income Generating Fund range Fund themes Asset allocation Investment grade corporate bonds UK government bonds (gilts) Asia (excluding Japan) equity income Specialist insurance assets Emerging market bonds in US$ Global government bonds Portfolio changes Bought Artemis US Extended Alpha Fund Baillie Gifford Japanese Fund Hermes Asia Ex Japan Equity Fund LF Lindsell Train UK Equity Fund Man GLG Japan CoreAlpha Fund RWC Global Emerging Markets Fund TB Evenlode Income Fund Vanguard Japan UCITS ETF Vontobel Emerging Markets Debt Fund Fund selection Fair Oaks Income Fund Vanguard UK Long Duration Gilt Index Fund BlackRock Global Funds Asia Pacific Equity Income Fund CATCo Reinsurance Opportunities Fund Ltd BlackRock Global Funds Emerging Markets Bond Fund Legal & General Emerging Markets Government Bond Index Sold Fidelity MoneyBuilder Dividend Fund JPM US Equity Income Fund TwentyFour Dynamic Bond Fund Nathan Sweeney Senior Investment Manager The US Federal Reserve raised interest rates in December, in-line with market expectations, making it three rate rises in This trend is expected to continue into 2018, with future rate rises on the horizon as robust economic growth takes hold. Despite this good economic news, we are yet to see a material pickup in wages in the US and many other developed markets, even as unemployment figures fall. Income sensitive assets were mixed during the quarter. Riskier bonds, such as high yield, performed better than lower risk global government bonds. Income sensitive assets are being held back by concerns about rising interest rates. However, it s important to note that the UK is not on the same path as the US. UK rates are likely to only go up once in 2018, given the fact that growth remains weak; with the most recent annual growth rate being 1.7%. Cumulative return Discrete yearly performance Fund and share class Total returns for the periods shown (%) 12 month yield 3 months 1 Oct 2017 to 1 year 3 years 5 years Architas MA Active Reserve A Inc n/a 1.7 n/a 11.3 n/a 23.6 n/a Architas MA Active Moderate Income A Inc Architas MA Active Intermediate Income A Inc Architas Diversified Global Income A Inc n/a 7.9 n/a n/a n/a Architas MM Monthly High Income A Inc Past performance is not a guide to future performance. The value of an investment, and any income, can fall as well as rise and is not guaranteed. You could get back less than you invested. Source: Morningstar Direct, January Performance as at 31 December Performance figures are shown in sterling unless we say otherwise. We work out return figures using a single pricing basis. The fund performance figures take into account the yearly management charge, but not any initial charge that may be due. The 12-month yield is the income delivered by the fund in the last 12 months. Source for 12-month yield data is Architas, as at 31 December Investing using a wrapper (a wrapper is an arrangement that brings together a range of investments under one roof) may also involve charges which will have the effect of reducing the past performance figures shown. The quartile ranking categorises funds within a sector into four equal bands based on their performance over a set period. 1 contains the best-performing funds and quartile 4 the worst performing. The Architas MA Active Moderate Income Fund and the Architas MM Monthly High Income Fund sit in the IA Mixed Investment 0-35% Shares sector. The Architas MA Active Intermediate Income Fund sits in the IA Mixed Investment 20-60% Shares sector. The Architas Diversified Global Income Fund and the Architas MA Active Reserve Fund sit in the IA unclassified sector. Architas Quarterly Investment Review Q Page 9

9 Performance Architas Specialist Fund range Fund themes Asset allocation Fund selection Timber Commodities Aircraft leasing Pictet-Timber Fund Greencoat UK Wind plc Amedeo Air Four Plus Ltd Solomon Nevins Senior Investment Manager Mayank Markanday Investment Manager Specialist insurance assets Infrastructure Emerging market government bonds Portfolio changes Bought TB Evenlode Income Fund AXA World Funds Global Inflation Bonds CATCo Reinsurance Opportunities Fund Ltd Legg Mason RARE Infrastructure Value Fund Legal & General Emerging Markets Government Bond Index Sold Amundi Funds Absolute Volatility World Equities The last quarter of 2017 saw a continuation of the market trends that were building over the course of the year. In short, riskier assets such as stocks delivered the strongest returns, while defensive assets like global government bonds were weaker. This has been driven by evidence that the global growth recovery we have seen isn t showing any signs of slowing. One of the consequences of stronger growth is the potential for rising inflation. Additionally, there is more pressure on central banks to tighten monetary policy by increasing interest rates and reducing quantitative easing (where financial institutions have access to cheap money). During the quarter, the Bank of England raised rates for the first time in over a decade, and the US Federal Reserve increased rates for the third time over the year. We expect central banks to slowly continue on this path in Cumulative return Discrete yearly performance Fund and share class Total returns for the periods shown (%) 12 month yield 3 months 1 Oct 2017 to 1 year 3 years 5 years Architas MM UK Equity A Acc Architas MM Strategic Bond A Acc Architas Diversified Real Assets D Acc n/a 2.1 n/a 13.7 n/a n/a Architas MM Diversified Protector 70 n/a 2.5 n/a 5.6 n/a 14.0 n/a 28.5 n/a Architas MM Diversified Protector 80 n/a 2.0 n/a 4.0 n/a 8.6 n/a 17.2 n/a Architas MM Diversified Protector 85 n/a 1.5 n/a 2.9 n/a 4.5 n/a 9.0 n/a Past performance is not a guide to future performance. The value of an investment, and any income, can fall as well as rise and is not guaranteed. You could get back less than you invested. Some of the Diversified Real Assets portfolio is invested in alternative assets which are different to the more traditional asset classes such as equities and bonds. During difficult market conditions these may be hard to sell at a fair price, referred to as being illiquid, which may in turn cause prices of these assets to go up and down more sharply than usual. Source: Morningstar Direct, January Performance as at 31 December Performance figures are shown in sterling unless we say otherwise. We work out return figures using a single pricing basis. The fund performance figures take into account the yearly management charge, but not any initial charge that may be due. The 12-month yield is the income delivered by the fund in the last 12 months. Source for 12-month yield data is Architas, as at 31 December Investing using a wrapper (a wrapper is an arrangement that brings together a range of investments under one roof) may also involve charges which will have the effect of reducing the past performance figures shown. The quartile ranking categorises funds within a sector into four equal bands based on their performance over a set period. 1 contains the best-performing funds and quartile 4 the worst-performing. The Architas MM UK Equity Fund sits in the IA UK All Companies sector. The Architas MM Strategic Bond Fund sits in the IA Sterling Strategic Bond sector. The Architas Diversified Real Assets Fund, the Architas MM Diversified Protector 70, Protector 80 and Protector 85 all sit in the IA unclassified sector. Page 10 Architas Quarterly Investment Review Q4 2017

10 Architas important information This document is issued by Architas Multi-Manager Limited, which is authorised and regulated by the Financial Conduct Authority. The value of investments and the income from them can fall as well as rise and is not guaranteed which means you could get back less than you invest. Past performance is not a guide to future performance. Investments in newer markets, smaller companies or single sectors offer the possibility of higher returns but may also involve a higher degree of risk. The value of investments can fall as well as rise purely as a result of changes in the exchange rate. You can invest in the funds mentioned in this document using a number of financial products. These funds may not be appropriate for investors who plan to withdraw their money within five years. Each fund (except the Architas MM UK Equity Fund) is allowed to invest over 35% of its assets in securities issued by a single local, national or supranational government (supranational government means an international union of different member states that share decision making, for example the European Union). Each of these funds can invest entirely in units of collective investment schemes. If you need more information on any of our funds, you can ask us for a free copy of the Key Investor Information Document (KIID) and the prospectus. The KIID is designed to help investors to make an informed decision before investing. You can view or download all our funds KIIDs from our website at architas.com, by following the Key Investor Information documents link from the home page and in the Information Centre. This document does not mean we are offering to sell or buy any share in the funds. Information relating to investments is based on research and analysis we have carried out or bought for our own purposes and may have been made available to other members of the AXA Group of Companies which, in turn, may have acted on it. While we try and take every care over the information in this document, we cannot accept any responsibility for mistakes and missing information that may be presented. Because of this, we recommend that you seek financial advice before making any investment decisions and do not enter into any investment transactions on the basis of this document alone. AXA is a worldwide leader in financial protection and wealth management. Architas operates three legal entities in the UK; Architas Multi-Manager Limited (AMML), Architas Advisory Services Limited (AASL) and Architas Limited. Both AMML and AASL are owned by Architas Limited, which is 100% owned by AXA UK plc (a company registered in England & Wales), with the ultimate parent and controlling company being AXA SA (a company registered in France). AMML is an investment company that provides access to other investment managers services through a range of multi-manager solutions, including regulated collective investment schemes. AMML in the UK works with strategic partners and AXA Group internal fund managers, to find out more information about this please visit architas.com/inhousestratpartners/. AMML is a company limited by shares and authorised and regulated by the Financial Conduct Authority. It is registered in England: No Registered Office: 5 Old Broad Street, London, EC2N 1AD. Architas Quarterly Investment Review Q Page 11

11 The Architas customer support team is on hand to answer your questions. Call Monday to Friday 9.00am 5.30pm; calls may be recorded. Calls are free from landlines and mobiles within the UK. Architas Multi-Manager Limited 5 Old Broad Street London EC2N 1AD architas.com ARC5329RM Created 22 January 2018 Expires 15 May 2018