Greystone Wealth Management. Quarterly Report. January 2017

Transcription

1 Greystone Wealth Management Quarterly Report January 217 Fourth quarter 216

2 December 216 James Menzies Investment Director Fund Manager Greystone Investment Committee James Jackson Investment Analyst Greystone Investment Committee Fourth Quarter Review We are pleased to send you our quarterly report for the Greystone multi-asset funds. Portfolio performance and activity is discussed in our fund manager review, whilst global events are covered in the economic and market commentary. The Investment Committee rotate between asset classes and incorporate high levels of portfolio diversification to help generate consistent returns. Our strategic investment decisions help to reduce fluctuations in performance and protect the value of your investments. Please see below a snapshot of our funds performance for Q4 216 versus their respective Investment Association (IA) sector averages. Scott Osborne Investment Analyst Greystone Investment Committee Q4 216 Performance % Q Performance % Conservative Managed Fund R Acc IA Mixed Investment -35% Shares NR Cautious Managed Fund R Acc IA Mixed Investment 2-6% Shares NR Balanced Managed Fund R Acc IA Mixed Investment 4-85% Shares NR Global Growth Fund R Acc IA Global NR Source: Thomson Reuters Lipper for Investment Management. (Key applies to both charts). All performance in this report is based upon R share class accumulation units denominated in GBP. Investment Associations (IA) sector NR refers to Nominal Returns. All performance data is sourced from Thomson Reuters Lipper for Investment Management and compiled to unless stated otherwise. The Conservative Fund achieved a conservative allocation and assumed the name Conservative on The Cautious Managed Fund changed mandate on The Balanced Fund changed mandate on The Global Growth Fund launched on Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 1

3 Multi-asset Portfolios Fund Manager Commentary Conservative Managed Fund December 216 Performance Summary The fund rose 1.18% over the fourth quarter versus the Investment Association (IA) Mixed Investment -35% Shares sector average -.14% and the IA Money Market.4%. Since the fund s re-launch on 1 st September 212 it has delivered 21.65% versus the IA sector average 21.45% and IA Money Market 1.15%. The fund s share price as at 31 st December 216 was; p (R share class accumulation units). The fund continues to offer investors low risk access to investment markets and provides the opportunity to outperform inflation and cash rates over the course of an economic cycle. Performance % Sep/12 Sep/13 Sep/14 Sep/15 Sep/16 Calendar Year Performance % Conservative Managed Fund R Acc IA Mixed Investment -35% Shares NR Source: Thomson Reuters Lipper for Investment Management. (Key applies to both charts). Fund Review & Outlook The fund s objective is to deliver long-term capital growth and outperform both the IA sector average and cash whilst maintaining limited equity exposure and low levels of risk. A key theme for the Investment Committee is maximising returns whilst minimising risks. Holdings Cash 1% Fixed Interest 41% GAM Star Credit Opportunities ishares FTSE UK Gilts Muzinich Global Tactical Credit Rogge Short Duration Global Real Estate Bond Rubrics Global Credit UCITS Vanguard Global Bond Index USD Vanguard Global Short-Term Bond GBP Equity 25% CF Woodford Equity Income Evenlode Income Majedie UK Income Trojan Income Threadneedle UK Extended Alpha Henderson European Focus Old Mutual Hermes Asia ex Japan 24% Old Mutual Global Equity Absolute Return Lazard Global Listed Infrastructure VT UK Infrastructure Income Aberdeen Property Trust Aviva Investors Property Trust Legal & General UK Property Standard Life UK Property Threadneedle UK Property Trust The fund performed well in absolute and relative terms in Q4. An underweight position in long dated sovereign debt, relative to our peers, was the key reason. UK commercial property bounced back. international and domestic equity exposure delivered solid returns. Fixed interest struggled. All performance in this report is based upon R share class accumulation units denominated in GBP. All performance data is sourced from Thomson Reuters Lipper for Investment Management and compiled to All Investment Association (IA) sector performance is Nominal Return (NR). The Conservative Managed Fund achieved a conservative allocation and assumed the name Conservative on Data for 212 shown for period to The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 2

4 December 216 Fund Manager Commentary Conservative Managed Fund US interest rates rose in December thus indicating that the Federal Reserve chairman, Janet Yellen, is becoming more confident about the prospects of future economic growth in North America. Unemployment is low, house prices are rising and wages are increasing, all of which have buoyed consumer and business confidence. Equity indices reacted positively to the election of Donald Trump, but fixed interest markets did not. Bond yields rose and prices fell. Investors became increasingly concerned about the potential for tighter monetary policy and looser fiscal policy in 217. Higher inflation for both consumers and producers also worried bond managers. Selling pressure hit long dated debt securities the most, as they have the greatest interest rate sensitivity. Despite a rapid rise in the benchmark 1yr government yield, all our fixed interest managers performed well. During the quarter we actively reduced our susceptibility to a sharp upward movement in rates by reducing our bond duration. Bond prices and yields move inversely to each other, as yields rise, prices fall and vice versa. Asset Allocations Please see below the current asset allocation for the Conservative Managed fund and the relative position versus the IA sector average. Current Asset Allocation 3% 3% 3% 24% 16% 1% 41% Cash Fixed Interest Source: Greystone Wealth Management. Within the fixed interest component of the portfolio, Dollar strength offset the rise in treasury yields and helped our global sovereign debt manager to be the lead performer. However, exposure to US government bonds meant our tactical credit fund struggled. Our other bond managers defended capital well, despite significant credit market volatility. All our UK equity funds had a solid quarter. Life insurance and oil stocks delivered for our lead performer, but consumer staples and healthcare de-rated and held back our large cap income manager. Overseas equity funds powered ahead, boosted by weakening Sterling. North America led the way up followed by Europe and Asia. US financials and IT stocks delivered for our standout manager, his fund rose 12% in Q4. Swiss healthcare and Belgian financials helped our European growth fund outperform. In Asia, overweight positions in South Korean electronics and Chinese technology stocks delivered for our specialist value manager. All our alternative investment managers delivered positive returns. Absolute return funds led the way up followed by commercial property and listed infrastructure. Relative Positioning versus IA Mixed Investment -35% Shares sector average -2% -1% % 1% 2% Underweight Overweight Cash Fixed Interest Japanese Equity Emerging Markets Equity Long positions in US technology coupled with short positions in European consumer stocks, enabled our global market neutral manager to be the lead performer. Source: Greystone Wealth Management and Lipper. Industrial warehouses in the Midlands and an out of town shopping centre in West Yorkshire, powered returns for our top real estate fund, whilst London offices and an Edinburgh leisure centre, held back the laggard. Rail freight in North America and toll roads in Italy drove performance for our global listed infrastructure fund. In the UK, solar and wind farms, along with a specialist healthcare building provider, delivered for our domestically focused infrastructure fund. All data is sourced from Greystone Wealth Management for current fund asset allocations and historical fund asset allocations. Data compiled to The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 3

5 Multi-asset Portfolios Fund Manager Commentary Cautious Managed Fund December 216 Performance Summary The fund rose 1.73% over the fourth quarter versus the Investment Association (IA) Mixed Investment 2-6% Shares sector average 1.32% and the IA Money Market.4%. Since the fund s mandate change on 24 th July 29 it has delivered 69.73%, versus the IA sector average 66.35% and IA Money Market 3.45%. The fund s share price as at 31 st December 216 was; 148.6p (R share class accumulation units) and 11.85p (R share class income units). The fund s natural yield of 3.16% (IA sector average 2.13%) is generated from equities, fixed income and alternative investments. Performance % Jul/9 Jul/11 Jul/13 Jul/15 Calendar Year Performance % Cautious Managed Fund R Acc IA Mixed Investment 2-6% Shares NR Source: Thomson Reuters Lipper for Investment Management. (Key applies to both charts). Fund Review & Outlook The fund s objective is to deliver high income with the potential for capital growth whilst outperforming the sector average and cash over a rolling three year period. We look to achieve this with less than half the volatility of equities. The fund has met all three objectives over the last six calendar years and remains welldiversified across the three core asset classes; fixed interest, equities and alternatives. Holdings Cash 3% Fixed Interest 27% Capital International Global High Income Opportunities GAM Star Credit Opportunities Muzinich Global Tactical Credit Rogge Short Duration Global Real Estate Bond Royal London Short Duration Global High Yield Bond Rubrics Global Credit UCITS Vanguard Global Bond Index USD Equity 52% CF Miton UK Multi Cap Income CF Woodford Equity Income Eden Tree Higher Income Evenlode Income Fidelity Enhanced Income Majedie UK Income Schroder Income Maximiser Trojan Income Montanaro European Income Prusik Income Fidelity American Special Situations Artemis Global Income Sarasin Global Higher Dividend 18% CF Ruffer Total Return Lazard Global Listed Infrastructure VT UK Infrastructure Income Aberdeen Property Trust Aviva Investors Property Trust Legal & General UK Property Standard Life UK Property Threadneedle UK Property Trust All performance in this report is based upon R share class accumulation units denominated in GBP. All performance data is sourced from Thomson Reuters Lipper for Investment Management and compiled to All Investment Association (IA) sector performance is Nominal Return (NR). Cautious Managed Fund changed mandate on Data for 29 shown for period to Natural yield data sourced from Thomson Reuters Lipper for Investment Management and compiled to The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 4

6 December 216 Fund Manager Commentary Cautious Managed Fund US interest rates rose in December thus indicating that the Federal Reserve chairman, Janet Yellen, is becoming more confident about the prospects of future economic growth in North America. Unemployment is low, house prices are rising and wages are increasing, all of which have buoyed consumer and business confidence. Asset Allocations Please see below the current asset allocation for the Cautious Managed fund and the relative position versus the IA sector average. Current Asset Allocation Equity indices reacted positively to the election of Donald Trump, but fixed interest markets did not. Bond yields rose and prices fell. Investors became increasingly concerned about the potential for tighter monetary policy and looser fiscal policy in 217. Higher inflation for both consumers and producers also worried bond managers. Selling pressure hit long dated debt securities the most, as they have the greatest interest rate sensitivity. Within the fixed interest component of the portfolio, currency strength and tightening yields on Indian and Argentinian sovereign bonds, enabled our emerging market credit specialist to be the standout performer. 8% 5% 6% 18% 3% 33% Cash Fixed Interest 27% Source: Greystone Wealth Management. Dollar strength offset the rise in treasury yields and helped our global sovereign debt manager deliver solid returns. However, exposure to US government bonds meant our tactical credit fund struggled. Despite a rapid rise in the benchmark 1yr government yield, all our fixed interest managers performed well. During the quarter we actively reduced our susceptibility to a sharp upward movement in rates by reducing bond duration. UK equity funds had a solid quarter. Banks and oil producers rallied strongly, helping our deep value manager be the standout performer. Consumer goods and healthcare stocks de-rated and held back our large cap income manager, he was the laggard in Q4. Relative Positioning versus IA Mixed Investment 2-6% Shares sector average Cash Fixed Interest Overseas equity funds powered ahead, boosted by weakening Sterling. North America led the way up followed by Europe and Asia. US tech and financials delivered for our lead performer. The fund rose over 1% in Q4. An Italian cosmetics manufacturer and Swedish property stock delivered for our European income manager. All our alternative investment managers delivered positive returns. Absolute return funds led the way up followed by commercial property and listed infrastructure. -18% -9% % 9% 18% Underweight Overweight Japanese Equity Emerging Markets Equity Industrial warehouses in the Midlands and an out of town shopping centre in West Yorkshire, powered performance for our standout real estate fund, whilst London offices and an Edinburgh leisure centre, held back returns for the laggard. Source: Greystone Wealth Management and Lipper. US and Japanese equity positions helped our multi asset absolute return manager enjoy another solid quarter, despite his exposure to long dated inflation linked bonds, which struggled. Rail freight in North America and toll roads in Italy drove performance for our global listed infrastructure fund. In the UK, solar and wind farms, along with a specialist healthcare building provider, delivered for our domestically focused infrastructure fund. All data is sourced from Greystone Wealth Management for current fund asset allocations and historical fund asset allocations. Data compiled to The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 5

7 Multi-asset Portfolios Fund Manager Commentary Balanced Managed Fund December 216 Performance Summary The fund rose 2.41% over the fourth quarter versus the Investment Association (IA) Mixed Investment 4-85% Shares sector average 2.59% and the IA Money Market.4%. Since the fund s mandate change on 1 st September 21 it has delivered 71.75% outperforming the IA sector average 61.57% and IA Money Market 2.5%. The fund s share price as at 31 st December 216 was; 189.2p (R share class accumulation units) and p (R share class income units). The fund continues to offer investors the ability to maximise capital growth whilst managing risk through a combination of bond, equity and alternative investments. Performance % Sep/1 Sep/12 Sep/14 Sep/16 Calendar Year Performance % Balanced Managed Fund R Acc IA Mixed Investment 4-85% Shares NR Fund Review & Outlook The fund s objective is to deliver positive returns over the course of an economic cycle from a diversified portfolio whilst maintaining a balanced attitude to risk. There is flexibility to rotate between asset classes which helps smooth returns and protects against volatility. Holdings Cash 1% Fixed Interest 14% Capital International Global High Income Opportunities GAM Star Credit Opportunities Rogge Short Duration Global Real Estate Bond Vanguard Global Bond Index USD Equity 72% CF Miton UK Multi Cap Income CF Woodford Equity Income Evenlode Income Majedie UK Income Schroder Income Maximiser Trojan Income CFP SDL UK Buffettology City Financial Absolute Equity Old Mutual UK Dynamic Equity Polar Capital UK Absolute Equity Threadneedle UK Extended Alpha Jupiter European Montanaro European Income Artemis US Extended Alpha Fidelity American Special Situations Majedie US Equity Old Mutual Hermes Asia ex Japan Equity Prusik Income Hermes Global Emerging Markets 13% F&C Global Equity Market Neutral F&C Real Estate Equity Long / Short Old Mutual Global Equity Absolute Return Lazard Global Listed Infrastructure Source: Thomson Reuters Lipper for Investment Management. (Key applies to both charts). All performance in this report is based upon R share class accumulation units denominated in GBP. All performance data is sourced from Thomson Reuters Lipper for Investment Management and compiled to All Investment Association (IA) sector performance is Nominal Return (NR). Balanced Managed Fund changed mandate on Data for 21 shown for period to The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 6

8 December 216 Fund Manager Commentary Balanced Managed Fund Asset Allocations The fund performed well in absolute terms, but lagged the sector average. An underweight position in US and Japanese equities, relative to our peers, was the reason. Please see below the current asset allocation for the Balanced Managed fund and the relative position versus the IA sector average. US interest rates rose in December thus indicating that the Federal Reserve chairman, Janet Yellen, is becoming more confident about the prospects of future economic growth in North America. Unemployment is low, house prices are rising and wages are increasing, all of which have buoyed consumer and business confidence. Equity indices reacted positively to the election of Donald Trump, but fixed interest markets did not. Bond yields rose and prices fell. Investors became increasingly concerned about the potential for tighter monetary policy and looser fiscal policy in 217. Higher inflation for both consumers and producers also worried bond managers. Selling pressure hit long dated debt securities the most, as they have the greatest interest rate sensitivity. Current Asset Allocation 13% 1% 3% 14% 1% 13% 6% 4% Cash Fixed Interest Emerging Markets Equity Within the fixed interest component of the portfolio, currency strength and tightening yields on Indian and Argentinian sovereign bonds enabled our emerging market credit specialist to be the standout performer. Dollar strength offset the rise in treasury yields and helped our global sovereign debt manager deliver solid returns. Our other bond managers defended capital well despite significant credit market volatility. During the quarter we actively reduced our susceptibility to a sharp upward movement in rates by reducing bond duration. Turning to the UK equity component, an adhesive manufacturer and a niche pharmaceutical company enabled our multi cap value manager to be the standout performer. Long positions in healthcare, coupled with short positions in energy, meant our UK absolute return manager was the laggard in Q4. Overseas equity funds powered ahead, boosted by weakening Sterling. North America led the way up followed by Asia, Emerging Markets and Europe. Technology and financials drove performance for our best performing US fund, whilst Norwegian insurance and Czech banking stocks delivered for our global income manager. Overweight positions in South Korean electronics and an Indian utility company, meant our Asian income specialist was the laggard amongst the international holdings. Long positions in US technology, coupled with short positions in European consumer stocks, enabled our global market neutral fund to be the lead performer within the alternatives component. Underweight Source: Greystone Wealth Management. Relative Positioning versus IA Mixed Investment 4-85% Shares sector average -16% -8% % 8% 16% Overweight Cash Fixed Interest Japanese Equity Emerging Markets Equity Source: Greystone Wealth Management and Lipper. UK student accommodation and Swedish residential stocks meant our real estate absolute return manager struggled in Q4. Rail freight in North America and toll roads in Italy drove performance for our global listed infrastructure specialist. All data is sourced from Greystone Wealth Management for current fund asset allocations and historical fund asset allocations. Data compiled to The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 7

9 Multi-asset Portfolios Fund Manager Commentary Global Growth Fund December 216 Performance Summary The fund rose 5.59% over the fourth quarter versus the Investment Association (IA) Global sector average 5.79% and the IA Money Market.4%. Since the fund launched on 5 th December 25 it has delivered % outperforming the IA sector average % and IA Money Market 12.19%. The fund s share price as at 31 st December 216 was; p (R share class accumulation units). The fund continues to offer investors the potential for high levels of capital growth from geographically diverse investments across more than 3 countries worldwide. Performance % Dec/5 Dec/7 Dec/9 Dec/11 Dec/13 Dec/15 Calendar Year Performance % 25 Fund Review & Outlook The fund s objective is to deliver long-term capital appreciation from a globally diverse portfolio. Investment exposure to multiple geographies helps dampen volatility and maximise returns. Holdings Cash 1% Equity 97% City Financial Absolute Equity Threadneedle UK Extended Alpha Artemis US Extended Alpha Baillie Gifford American F&C North American Fidelity American Special Situations Majedie US Equity Old Mutual Polen Capital Focus US Growth Schroder US Smaller Companies Vanguard US Equity Index BlackRock European Dynamic Henderson European Focus Jupiter European Montanaro European Income Man GLG Japan CoreAlpha Morant Wright Sakura Hermes Asia ex Japan Equity Prusik Income Hermes Global Emerging Markets 2% Polar Capital Global Insurance Global Growth Fund R Acc IA Global NR Source: Thomson Reuters Lipper for Investment Management. (Key applies to both charts). The fund performed well in absolute terms, but lagged the sector average in Q4. An overweight position in Asian equities, relative to our peers, was the reason. Most equity markets performed well in the fourth quarter. Japan led the way up, followed by North America, Emerging Markets and the UK. Asia and Europe lagged. The Global Growth fund has outperformed its sector average peers in nine out of the past eleven calendar years. (Source: Thomson Reuters Lipper Investment Management) All performance in this report is based upon R share class accumulation units denominated in GBP. All performance data is sourced from Thomson Reuters Lipper for Investment Management and compiled to All Investment Association (IA) sector performance is Nominal Return (NR). Global Growth Fund launched on The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 8

10 Fund Manager Commentary Global Growth Fund December 216 US interest rates rose in December thus indicating that the Federal Reserve chairman, Janet Yellen, is becoming more confident about the prospects of future economic growth in North America. Unemployment is low, house prices are rising and wages are increasing, all of which have buoyed consumer and business confidence. Equity indices reacted positively to the election of Donald Trump, but fixed interest markets did not. Bond yields rose and prices fell. Investors became increasingly concerned about the potential for tighter monetary policy and looser fiscal policy in 217. Higher inflation for both consumers and producers also worried bond managers. Selling pressure hit long dated debt securities the most, as they have the greatest interest rate sensitivity. Politics will continue to influence markets in coming months, as voters go to the polls in the Netherlands, France and Germany this year. General elections are just another risk factor for investors to price into asset valuations. We are pragmatic in our approach to investment management. The fund is highly diversified across; industrial sectors, geographies and currencies, helping to defend capital when markets fall but also designed to capture investment returns when asset prices rise. Turning to the portfolio, all of our managers delivered solid numbers. Banking stocks and a steel manufacturer helped our Japanese large cap fund be the standout performer in Q4. US managers delivered excellent returns. Dollar strength and investor sentiment pushed markets higher. Economically sensitive stocks outperformed less cyclical businesses as earnings expectations improved. A games manufacturer and software provider enabled our small cap US manager to be the top performer; whilst a de-rating of internet and technology stocks meant our large cap growth fund struggled. Danish pharmaceuticals and a Swiss agribusiness pulled our European growth specialist into the red for the quarter, he was the laggard amongst our overseas holdings. Overweight positions in a South Korean electronics manufacturer and an Indian utility company, held back our Asian income manager. A semi conductor business in Taiwan and Chinese internet stocks drove performance for our Emerging Market fund. Asset Allocations Please see below the current asset allocation for the Global Growth fund and the relative position versus the IA sector average. Current Asset Allocation 8% 7% 2% Cash 1% 7% 14% 16% Underweight 45% Japanese Equity Emerging Markets Equity Source: Greystone Wealth Management. Relative Positioning versus IA Global sector average -12% -6% % 6% 12% Overweight Cash Fixed Interest Japanese Equity Emerging Markets Equity Source: Greystone Wealth Management and Lipper. In the UK, oil and insurance stocks delivered for our core large cap manager. Whilst long positions in an online travel retailer and a short position in a specialist pharmaceutical manufacturer, helped our absolute return fund be the standout performer. Within the alternatives component of the portfolio, a Bermudan based re-insurance firm and a US domiciled commercial insurer, powered returns for our recently introduced specialist financials fund. This product will help diversify income streams and dampen volatility, whilst also seeking to achieve double digit growth. All data is sourced from Greystone Wealth Management for current fund asset allocations and historical fund asset allocations. Data compiled to The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 9

11 December 216 Investment Committee Economic & Market Commentary Choppy Waters Prediction is very difficult, especially about the future wise words attributed to Niels Bohr, winner of the 1922 Nobel Prize in physics for his work on quantum mechanics. Not even a genius with a deep understanding of quantum probability would bet on a 3,, to 1 shot, however that is just what a 3 fold accumulator on Leicester winning the premier league, Britain voting to leave the EU and Donald Trump winning the US presidential election would have paid out, if placed at the longest odds available. Looking back on these events and others it is tempting to rationalise how obvious the outcomes were, and conclude they could have been predicted in advance. Hindsight bias makes predicting the future seem easy, but even Leicester super fan Gary Lineker bet against his own club, a fact that literally cost him his shirt (Lineker presented Match of the Day in just his boxer shorts after losing the bet). Investing is no different, however, and when it comes to markets the rear-view mirror is always clearer than the road ahead. Over the past five years we have navigated a wide variety of market moving events, from military conflicts to political upheaval, and for each of the past five calendar years the Greystone funds have delivered positive returns*. Over the same five year period each of the funds has outperformed its respective sector average*. Most importantly however, it is robust processes and quality research that made this performance possible, not guessing which way a referendum would swing. The UK voting to leave the EU was not our base case scenario, nor was Trump winning the presidency, but combining disciplined asset allocation with careful fund selection minimised the risks surrounding these events, to the extent that we did not worry too much about the outcomes either way. As the major polling companies discovered last year, even the most accurate models and forecasts will fail at some point; but disciplined active management, applied over sensible time horizons, consistently delivers strong risk adjusted returns and that is our primary focus when investing our client s money. With the Greystone philosophy firmly in the back of our minds, let us turn to the year ahead and examine how recent events have changed the outlook for 217. The most important factor driving markets has been increasing bond yields and falling bond values. The US Federal Reserve hiked interest rates in December, only the second increase from the Fed since the financial crisis. During that time there have been an estimated 67 rate cuts from central banks across the globe 1, so while it s fair to say that one swallow does not make a summer, it does seem that the trend towards ever lower rates has reversed. This was underlined by the latest forecasts from the Federal Open Markets Committee which suggested a slightly faster than expected rate of increase in 217. Although, this should be taken with a pinch of salt given the same committee initially predicted four rises for 216. Gilt yields in the UK also increased and the cost for the government to borrow money for 1 years rose from.5% in mid-august to 1.2% by the end of the year, rising as high as 1.5% during November 2. As a result the benchmark UK Gilt index fell over 3.4% in Q4; the largest quarterly fall since the second quarter of 213. Domestically, this trend for rising yields (and falling bond prices) was supported by a number of factors. Firstly underlying inflation has been rising since the second quarter, in part due to the stabilisation in the oil price. By the end of November, the 12 month rate of consumer price inflation (CPI) was 1.2% 3 (up from.3% in May) and transport prices, which consistently created downward pressure on headline CPI throughout 215, were the single largest contributor. The same data also showed that the only part of the CPI shopping basket where prices were not increasing was food & nonalcoholic beverages, largely due to the ongoing supermarket price war. The falling value of sterling will also have a significant effect on inflation over the coming year. Analysis by the Office of National Statistics (ONS) suggests that the sectors most exposed to currency fluctuations, such as clothing or new cars, have not yet hiked prices. In contrast to this, producer price inflation (the cost of raw materials) has increased markedly, reaching 12.9% in November 3. With their cost base rising, companies will either take a hit to their margins or pass the cost onto consumers in the form of price increases. With pre-brexit currency hedging strategies potentially still in place and prices for Christmas sales agreed much earlier in the summer, the impact of this sterling devaluation may only begin to filter through to prices over the latter part of 217. Politics has also acted as an accelerant to these inflationary factors. The increasing focus on fiscal stimulus, particularly in the US but also in the UK, means government spending is likely to increase. This will contribute to inflation in the straightforward sense that increasing demand for goods pushes prices up, but it may also directly affect government borrowing costs. If major global bond managers believe government spending is too high relative to their GDP, they may start selling bonds. This occurred in the early 9 s when so called bond vigilantes pushed US treasury yields almost 3% higher in response to the spending of the Clinton administration. A senior Clinton adviser later commented that I used to think that if there was reincarnation, I wanted to come back as the president or the pope now I would like to come back as the bond market. You can intimidate everybody 4. The flipside of this is that central banks, who already own a substantial share of global government debt, are not in the least bit price sensitive and will almost certainly continue to buy bonds through quantitative easing. This may challenge the bond managers ability to restrain government spending at all. There has also been a rotation in stock markets. The steady eddy, defensive companies with globally diversified income streams and reliable dividend payments, like pharmaceuticals or consumer staples, have fallen out of favour. As bonds became increasingly expensive, investors turned to these types of safe haven companies to provide them with a stable income yield, effectively making them a proxy for the bond market. What pushed these stock prices up however is now holding them back, as yields have pushed out, these companies have sold off in sympathy with the fixed interest market. The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. All performance data compiled from Thomson Reuters Lipper for Investment Management, data correct to * The Greystone Conservative Managed fund launched 1/9/212 and so does not have a five year track record but has delivered positive returns in each calendar year & outperformed the sector average since launch. Sources: 1 - Deustche Bank Market Research, 2 - Financial Times, 3 - Office for National Statistics, 4 James Carville, Clinton administration adviser 1993 Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 1

12 December 216 Investment Committee Economic & Market Commentary The real winners in the equity market over the latter half of the year were the less defensive and more economically sensitive companies. These value stocks, like banks and miners, were unloved or out of favour and lacked the reliable dividends that yield hungry bond investors were craving. With economic stimulus and inflation now the prevailing outlook for 217, it is precisely these characteristics which make these stocks most attractive and prices rallied accordingly in Q4. Much of the expected economic stimulus will come from the US, where Donald Trump has promised tax cuts, increased spending on infrastructure and a tougher stance on trade deals. Political commentators often say that presidents campaign in poetry, but govern in prose, suggesting politicians take a softer stance once in office. This is also likely to be the case with Trump, although given his propensity for releasing statements via Twitter, he may have to compress his prose down to 14 characters. Despite the claims made during the election campaign the only firm commitment from the President Elect so far is a promise to withdraw from the trans-pacific trade partnership on his first day in office. This represents a slowing of the pace of globalisation but not a backwards step, in fact given how globally integrated company supply chains are in the modern world any reversal of globalisation would be difficult to achieve. With the big political decisions out of the way in the UK and United States, 217 will be a year of European politics. The decision makers elected in the coming year will define the future direction of the European project, oversee crucial Brexit negotiations and help shape the economic outlook for the world. The first of these elections is on March 15th in the Netherlands, where Geert Wilder s far right PVV (Party for Freedom) are narrowly leading the polls. Although this is by no means a fringe party (having already been the third largest party at the 21 election) the PVV winning the most seats would send a strong euro-sceptic and antiimmigrant message to the rest of Europe and may pose a difficult challenge for the fragmented Dutch political system. Next to go to the polls is France, where the first round of the Presidential election will be held on April 23rd. Unless one candidate wins an outright majority however, only the two most popular candidates will progress to a second round run-off vote scheduled for May 7th. Traditionally this would pit the centre-right Republicans against the centre-left Socialists. Whilst it is widely expected that Republican candidate and former Prime Minister Francois Fillon will make it to the run-off comfortably, polling suggests that Marine Le Pen of the far right National Front will be the second candidate. The French Presidential vote is followed by elections to the National Assembly in June. The National Front is also predicted to perform well here, but as political outcasts they would struggle to form any coalition. Le Pen could feasibly win the presidency but without the support of the national assembly her powers would be weakened. Finally on politics, the German elections are expected in late September but could occur as early as August. Although Angela Merkel has come under pressure due to her open immigration policies, the populism seen elsewhere in Europe has not influenced German politics to the same degree. The outcome will undoubtedly be important but the final result will be strongly influenced by the preceding elections in France. Given the events of the second half of 216 one might conclude that each subsequent political decision had a diminishing effect on global markets, and thus we should not worry about those in 217. Consider that the final flourish to 216 was the rejection of proposed reforms to the Italian constitution, and subsequent resignation of Prime Minister Matteo Renzi. This was a fitting full stop to a year where the political status quo was challenged at every available opportunity; but whilst it may have taken three months for normality to return to markets following the Brexit vote, the volatility arising from the Trump victory was over in three days and the impact of the Italian vote lasted less than 3 hours. It is only with a healthy dose of hindsight that these events now seem so benign. When sailing through rough seas it takes an experienced skipper and a talented crew to navigate the smoothest course. Greystone s diversified, multi-asset approach helps us guide our investors through the turbulent waters, that make so many others queasy. As an example, the Greystone Global Growth fund returned 22% in 216 whilst the FTSE 1 returned 19%, but our methodical processes ensured we achieved this with nearly 3% less volatility. At Greystone we will always endeavour to generate positive returns in excess of our benchmarks, but our primary aim is delivering the best possible risk adjusted returns in line with our client s expectations. This is central to our process and we will not be blown off course - no matter how choppy the conditions may get. A Happy New Year to all our clients and thank you for your continued support. As always, please contact your usual adviser for further information or for access to our monthly updates. As both Fillon and Le Pen reside on the political right, the final result may depend on how many Socialists turn out for the second round, and who they prefer. A potential wildcard has also emerged in the shape of former economic minister Emmanuel Macron. He has formed his own party En Marche! and his appeal to centrist elements of French politics could disrupt the traditional voting patterns. The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing. All performance data compiled from Thomson Reuters Lipper for Investment Management, data correct to Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 11

13 Unemployment Rate Inflation Rate December 216 Key Charts Final Thoughts Reflated At the peak of the global financial crisis the significant weakening of the UK pound increased the cost of imported goods. This led to UK consumer prices (CPI) rising at an annual rate of over 5%. UK Inflation Consumer Price Index (CPI) 1% 8% CPI fell to % in August 215, as falling prices; particularly food and fuel, combined with sterling strength, created deflationary pressures. Food and fuel collectively account for circa. 14% of the UK CPI basket of goods. CPI rose from.9% in October 216 to 1.2% in November 216. This was the highest rate since October 214, when it was 1.3%. Source: Office for National Statistics. 6% 4% 2% % -2% Dec-88 Dec-95 Dec-2 Dec-9 Dec-16 CPI 2% Target 1% to 3% Bandwidth Source: Office for National Statistics. Good Job! UK unemployment is 4.8%, down from 5.2% a year earlier (as at ). UK Unemployment Rate 12% It has not been lower since July 25. Across the UK, there were 31.8 million employed people in October 216, 342, more than a year earlier. There were 1.62 million unemployed, 13, fewer than a year earlier. Unemployment in most developed economies has trended downwards over recent years. Rising levels of employment is a sign of continued economic expansion. 1% 8% 6% 4% 2% Jan- May-3 Sep-6 Jan-1 May-13 Sep-16 Source: Office for National Statistics. United Kingdom Japan United States Europe Source: Office for National Statistics, Bureau of Labor Statistics, Eurostat & Statistics Bureau. The above are the views and opinions of the Greystone Investment Committee and are correct at the time of writing unless otherwise stated. Data for inflation sourced from Office for National Statistics. Data for unemployment rates sourced from Office for National Statistics (UK), Bureau of Labor Statistics (US), Eurostat (Europe) and Statistics Bureau (Japan). Data correct as at Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Quarterly Commentary 12

14 Visit for additional information IMPORTANT INFORMATION This document is for professional investors, advisors and retail clients. It does not constitute a form of financial advice and should not be relied upon. This is provided for information only. At Greystone we seek to guide you with your investment strategies by assessing and continually checking the levels of investment risk you are willing and able to take, thus ensuring suitable investments are made on your behalf. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Investment markets and conditions can change rapidly and as such any views expressed herein should not be relied upon when making investment decisions. Neither the payment of dividends or return of capital is implied or guaranteed. There is a risk of loss of capital. Rates of exchange may cause the value of investments to go up or down. The information and any opinions expressed herein may change at any time and therefore this document does not constitute investment, tax, legal or other advice or recommendation or an offer to sell or an invitation to apply for any product or service. Investors should consider carefully whether an investment in this fund or portfolio is suitable in light of circumstances and resources. Greystone Wealth Management is a trading name of Foundation Investment Management Limited who are authorised and regulated by the Financial Conduct Authority. Financial Services Register Number Q416-December