March Contents: PERFORMANCE UPDATE ASSET CLASS REVIEW MORTGAGE RATES GOING UP-ACT NOW FINAL COMMENT PERFORMANCE UPDATE

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1 March 2018 Contents: PERFORMANCE UPDATE ASSET CLASS REVIEW MORTGAGE RATES GOING UP-ACT NOW FINAL COMMENT PERFORMANCE UPDATE February saw many stock markets go below their trend line and our portfolios (except for the Third Industrial Revolution portfolio) experienced losses of between 1.33% and 2.26%. This compares favourably to a loss of 3.40% from the FTSE 100. The Third Industrial Revolution portfolio bucked the trend as technology stocks continued to grow, with the portfolio gaining 0.39%. Our Trend Following portfolios significantly increased their cash position over the month as many equity markets as well as bond markets moved below trend. Fears of an expanding trade war also hit global markets after US President Donald Trump said he would impose heavy tariffs on imports of steel and aluminium for a long period of time. Overall, we ended February with 44% of the equity markets we monitor below trend and are invested accordingly. The performance of the portfolios over the last month and year is shown below: Portfolio Performance % 1 month Performance % 1 year Foundation Cautious Balanced Adventurous Dynamic Equity Income Generating Third Industrial Revolution Retirement Investment Solution Retirement Investment Solution Retirement Investment Solution Please note that these figures do not include the platform or our fees.

2 Trend Following Signals The table below shows whether the asset class is either in a positive trend ( ) or a negative trend ( ). The portfolios will have more exposure to those asset classes in a positive trend and less (if any) to those in a negative trend. These are the main asset classes we monitor: Asset Class Trend Signal Asset Class Trend Signal Global Equity Emerging Market Equity UK Equity Commodities Europe ex UK Equity UK Corporate Bonds US Equity UK Corporate Bonds (Short dated) Japan Equity UK Index Linked Bonds Pacific Equity Global Bonds Gold UK Gilts Global Property Emerging Market Bonds Overseas Corporate Bonds Summary of Portfolios An icy blast swept across the UK recently and the weather was chilly too! The recent fall in the FTSE 100 of around 7% over just a few days was a stark reminder of the risks involved in equity investing. The precise cause of the sell-off was difficult to pinpoint as always but with the Federal Reserve (the US equivalent to the Bank of England) looking determined to raise interest rates after an unprecedented period of unusually low interest rates, investors are starting to reconsider the valuation that they have placed on stock markets. They are also beginning to reassess how households might cope with higher interest rates, because they too have become hooked on the reality-suppressing effects of low interest rates. If we throw geopolitical tensions into the mix, plus the dreaded B word Brexit then it seems very possible that financial market volatility will remain elevated this year. The equity market sell-off caused European and UK equities to fall below trend. Around half of our equity signals are now below trend and the Trend Following portfolios have significantly increased their cash position. Bonds have also been hit hard with corporate bonds joining the list of bond asset classes below trend. After a long period in which equity markets have remained mostly above trend we are now faced with much uncertainty as to the future direction. Cautious Portfolio The Cautious portfolio increased its cash position to around 26.9% as the Trend Following funds sold the stock markets that went below trend and the portfolio also rebalanced out of UK and European stock markets. Exposure to bonds also fell to just 7.5% as corporate bonds fell below trend. Balanced Portfolio Similar to the Cautious portfolio, the Balanced portfolio increased its cash position. Whilst the cash position increased to 19.9%, the exposure to market neutral funds also increased to 8%. Market neutral funds are uncorrelated to stock markets as they buy as many companies as they sell. Whilst they cannot be considered as cash as they can fall and rise quickly, their movement is not at all dependent on whether stock markets are rising or falling. They therefore reduce the overall risk of the portfolio. Adventurous Portfolio Interestingly defensive asset classes are not acting as the usual safe havens and the best performing fund was one of the highest risk ones the L&G Global Technology fund rose 4.05%. As of 1 st March, 44% of the risk assets were below trend. A falling sterling has contributed to some overseas markets staying above trend and some of the higher risk markets have been less affected than the FTSE 100. This is the reason why the Adventurous portfolio fell less than the Cautious portfolio this month.

3 Dynamic Equity Portfolio The Dynamic Equity portfolio was our second best performing portfolio. The momentum philosophy that forms the core of this portfolio has ensured that the portfolio has invested in more outperforming sectors such as technology, Japanese Smaller Companies and US Companies. Foundation Portfolio The Foundation portfolio reduced its exposure to bonds as UK corporate bonds went below trend. This is as a result of expectations that interest rates will rise, forcing down bond prices. Exposure to gold was also decreased but if markets remain subdued then it may be a case that gold breaks above trend again. Exposure to European and UK equities was also decreased, with the overall exposure to equities reducing to 43.55%. Income Generating portfolio We made a fund switch to the portfolio, selling the Woodford Equity Income fund and buying the Old Mutual Global Equity Income fund. The Woodford Equity Income fund has simply underperformed due to some of the less liquid and smaller companies that the fund manager has invested in, falling significantly. We now no longer feel that it is suitable for our Income Generating portfolio. By contrast, the Old Mutual Global Equity Income fund invests in a much more diversified portfolio of 394 companies and has a process that has significantly outperformed: In addition, the income is paid monthly which is important for clients relying on an income from this portfolio. The Third Industrial Revolution portfolio The portfolio grew by 0.39% over the month, as technology stocks moved higher. The portfolio is up an impressive 19.19% over the last year as stocks linked to the exponential growth of technology continue to perform well. Retirement Investment Solutions The three portfolios significantly increased their cash exposure as most bond markets fell below trend. This is in addition to the equity markets described above. Whilst we do not know whether markets will bounce back from here or if this is the start of another crash, the Retirement Investment Solutions are designed to significantly reduce risk when markets are falling and therefore reduce losses if indeed we see a significant correction from here.

4 ASSET CLASS REVIEW Each month we examine some charts that look interesting, which gives you an insight into our current thinking. This month we focused on global equity markets and how they have been impacted by the recent sell-off. The Markets that fell but recovered We have just experienced a wobble in some stock markets as some of them fell by over 10% from their highs. However, some have significantly recovered from their February low and now even approach new highs. Interestingly, it is the higher-risk stock markets that have performed the best and the charts below demonstrate four examples of markets that fell but recovered. The blue line is the stock market and the red line is the trend line: Nasdaq (US stock market, predominantly technology) Australia Russia Asia Pacific

5 The Markets that fell and haven t recovered Some markets fell and despite trying to bounce, have not recovered. Perhaps the two worst-performing markets are the UK and Europe, but we have also seen the Canadian stock market underperform due to having a large exposure to oil and mining companies: FTSE 100 UK Smaller Companies Europe Canada In Summary February saw many stock markets break below their trend line, but interestingly some higher-risk markets recovered from their falls. Our weighting in equities has fallen but we are still overweight those markets that are above trend. Whilst many of us try and gauge the investment world by looking at the performance of the FTSE 100, we can clearly see that this has been one of the worst performers.

6 MORTGAGE RATES GOING UP ACT NOW If you have a mortgage on the lender s standard variable rate, or are approaching the end of a current deal, then it is important to start thinking about re-mortgaging as soon as possible. This is because the Bank of England has recently communicated that due to inflationary concerns and a stronger economy, they may need to raise interest rates more quickly than previously expected. The Bank of England kept the rate at 0.5 per cent in February and in its quarterly inflation report indicated that the next rate rise will be in autumn or winter this year. However, economists are predicting that a rise of 0.25 per cent could come as early as May, with another one by the end of the year if the economy performs well. A good measure of where future mortgage fixed rates will rise to can be seen by analysing the rate at which the UK Government can borrow at over the next 10 years. Since the start of the year this rate has jumped up from 1.2% to 1.6% a rise of 33% in just two months! It is this rate that fixed rates tend to be based around, so it looks likely that they will be going up shortly. If we look at the 10-year rate that the US Government borrows at then you can see how it has gone up even more dramatically than the UK: There are still some great 5-year fixed rate mortgage deals on offer at around 2% but we believe that these will be withdrawn shortly. Therefore, please contact us urgently if you want to consider a re-mortgage. Watson Moore runs a specialised mortgage company called Linden Rooke, whom can help source the best interest rate and most suitable product for you. Linden Rooke have a wealth of experience solely in the mortgage market and are fully independent which means they can source a deal from every lender. This independence is vital especially when rates are rising as the difference in the available mortgage rates between lenders can widen as some lenders push up their rates in anticipation of higher future rates whilst others continue on their existing deals for longer. Please contact Sam at Linden Rooke on or enquiries@lindenrooke.com.

7 FINAL COMMENT The recent stock market falls are related to economic data in the US being better than expected. This in turn has caused expectations that inflation will be higher than expected and interest rates will have to rise quicker than expected. The Bank of England has confirmed that interest rates in the UK are likely to rise quicker and higher than previously expected and there is a fear that rising interest rates will prove to be a headwind for equity markets, hence February saw stock markets suffer a small correction. Some stock markets have recovered somewhat from their February lows and remain above trend, but others have not, and fell below trend in February. Exposure to these markets has been reduced in our Trend Following portfolios and this should protect them if indeed we experience further falls in stock markets. Watson Moore Independent Financial Advisers Limited 54 Station Road Upminster Essex RM14 2TU Tel: chrismoore@watsonmooreifa.com Authorised & Regulated by the Financial Conduct Authority The past is not necessarily a guide to future performance. The value of any investments can go down as well as up and you may not get back the full amount invested. Taxation is subject to change and you may have to pay tax on any gains. The Watson Moore portfolios are unlikely to exactly mirror our clients' portfolios due to the timing of the initial investment and the speed of response to our fund switch recommendations as well as the effect of charges. The figures above therefore assume a client invested on the launch day and have responded immediately to our recommendations. As from the middle of 2016, the portfolios have been run on a discretionary basis by our sister company WM Capital Management. All figures and charts are provided by Financial Express.