INVESTMENT UPDATE. 4th May 2016 PERFORMANCE UPDATE

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1 INVESTMENT UPDATE 4th May 2016 PERFORMANCE UPDATE ASSET CLASS REVIEW SPOTLIGHT ON WOODFORD EQUITY INCOME FUND WHAT RISK ARE YOU TAKING WITH YOUR MONEY? FINAL COMMENT PERFORMANCE UPDATE The beginning of April saw a continuation of the strong returns that we saw in March. However, the latter part of the month saw these gains reverse. Over the month the portfolios changed by between 0.33% and -0.63% (see below). We are beginning to see some stock markets break back into upward trends and feel that we are at a pivotal point in which these stock markets could drag every stock market higher, or the downward trending markets could win and all markets fall. The portfolios remain more cautious than normal but exposure to equities has increased in the Cautious, Balanced and Adventurous portfolios.

2 Adventurous Portfolio: Brief Commentary April 2016 witnessed a reversal of recent trends in many markets. For the most part, bond yields rose marginally (meaning bond prices fell), whereas most risk assets were strong. Oil appreciated by 21.5% during the month and the MSCI World Stock Market Index by 2%. However, as Sterling appreciated by 1.9% against the US Dollar this proved a headwind for some of our overseas investments. The Federal Reserve board left the way open for a possible further rate rise during the summer. The Eurozone exhibited surprising growth and has at last returned to pre-crisis levels of economic activity. In the UK, attention is focussed on the European Union referendum to the near exclusion of all other topics. The two worst performing funds were two that have a high exposure to US Equities which fell as a result of Sterling appreciating against the US Dollar. If we vote to remain in the EU, then some of our overseas holdings could fall but if we vote to leave then they should do extremely well. Property proved to be the most resilient asset class and all of the property funds that we invest in produced positive returns, albeit much smaller than normal. We are looking to replace two of these funds with two new property funds that have better short term performance and, therefore, please check your s for the fund switch recommendation. The portfolio has begun to take advantage of some upward trends in stock markets via the Global Trend fund which appreciated by 1.14%. Overall, we feel that the portfolio is positioned sensibly as we approach the Brexit vote. We are seeing some equity markets begin new upward trends and hope to take advantage of them if they continue to move up. Performance Data Adventurous Portfolio

3 Balanced Portfolio: Brief Commentary We are beginning to see some previously poor performing stock markets begin to break into strong new upward trends. The Global Trend fund has taken advantage of this and increased exposure, which is why it grew by 1.14% in April. We feel that we are at a pivotal moment where we are beginning to see some stock markets break into new upward trends and this could drag every stock market higher. However, we also have some markets that do not look good and if these fall further then it could drag all stock markets down. If this happens the portfolio will do its best to minimise losses. Property proved to be the most resilient asset class and all of the funds that we invest in produced positive returns, albeit much smaller than normal. We are looking to replace two of these funds with two new property funds that have better short term performance and, therefore, please check your s for the fund switch recommendation. If we see the returns from all property funds slow down then we may reduce exposure. We do not feel that it is the right time to do this at the moment. Overall we feel that the portfolio is positioned sensibly as we approach the Brexit vote. We are seeing some equity markets begin new upward trends and hope to take advantage of them if they continue to move up. Performance Data Balanced Portfolio

4 Cautious Portfolio: Brief Commentary We believe that the portfolio is positioned extremely well for the volatility that we might experience in the run up to the Brexit vote. Underpinning the portfolio is a 20% exposure to UK Property Funds which have been producing a positive return each month for the last three years. However, two of the funds have begun to produce smaller returns than normal and we are looking to replace them with a fund switch this month with two new property funds that have better short term performance. We also have an exposure of 47% to equities and whilst Brexit is taking up all our newspaper coverage, global equity markets are continuing to recover. Therefore, having exposure to asset classes that are in upward trends is important regardless of the news coverage. The F&C Global Equity Market Neutral fund which we included in the portfolio recently, had one of its worst performing months and fell 3.47%. The fund is still up significantly since launch and from time to time we must expect this to happen. It has begun to bounce back and this should hopefully turn out to be a temporary blip. However, it proved to be a headwind to performance for the month. Performance Data Cautious Portfolio

5 Dynamic Equity Portfolio: Brief Commentary The Dynamic portfolio works best when global stock markets are displaying strong upward trends. Since launch the portfolio has outperformed by nearly 3.5%. It worked best when markets surged higher but has struggled a bit over the last year, as stock markets have been volatile and displaying no strong momentum. It is a very geographically diversified portfolio and when stock markets begin to move significantly higher, then this portfolio should resume its period of outperformance. The rise of Sterling seen last month, caused four out of five of the portfolios worst performing funds to be overseas equity funds. The Brexit vote will influence the returns of the portfolio as there is 55% of the portfolio invested in overseas equities and these funds will be affected by the expected volatility in Sterling. We do however, think that global stock markets are beginning to stabilise and that we will shortly see some strong upward trends that will help the portfolio. Performance Data Dynamic Equity Portfolio

6 Foundation Portfolio: Brief Commentary April 2016 witnessed a reversal of recent trends in many markets. For the most part bond yields rose marginally (meaning bond prices fell), whereas most risk assets were strong. Oil appreciated by 21.5% during the month and the MSCI World Stock Market Index by 2%. However, as Sterling appreciated by 1.9% against the US Dollar this wiped out all of the gains from our overseas investments. The Federal Reserve board left the way open for a possible further rate rise during the summer. The Eurozone exhibited surprising growth and has at last returned to pre-crisis levels of economic activity. In the UK, attention is focused on the European Union referendum to the near exclusion of all other topics. The portfolio was thus hurt by its exposure to bonds and overseas equities with the Blackrock Index Linked Gilt fund falling 2.58% and the Fundsmith Equity fund 1.23%. Property proved to be the most resilient asset class and both of the funds that we invest in produced positive returns, albeit much smaller than normal. We are looking to replace these two funds with two property funds that have better short term performance and, therefore, please check your s for the fund switch recommendation. Performance Data Foundation Portfolio

7 ASSET CLASS REVIEW This section will give you an insight into our current thinking as we have highlighted the current charts that look interesting. This month we take a look at the odds of Brexit, commodity prices and the Euro exchange rate. BREXIT - Looking less likely One of the best ways of predicting future events is to look at the odds of it happening with the bookmakers. The chart below is the probability of the UK remaining in the EU from Betfair. You can see that from March this year momentum was swinging to the leave campaign. However, over the last few weeks it has swung dramatically the other way and there is now a 73.5% chance of us remaining in the EU: What we must remember though is that bookmakers can, and do, get it wrong. They predicted that the conservatives had little chance of winning the election and gave odds of for Leicester to win the league! GOLD: Reaches a 15-month high After falling from $1900 to $1100, gold has started to move higher:

8 Gold has automatically been added to the Cautious, Balanced and Adventurous portfolios via the Global Trend fund. OIL-Petrol prices are rising and look set to continue We have all benefitted from the falling oil price but now the downtrend seems to have been broken. This will lead to higher inflation but also a bit more stability in the oil producing countries such as Russia and Saudi: EURO - if you are going on holiday to Europe this summer should you convert your currency now or wait? The chart below shows how many Euros you can buy for your pound: Last year was a brilliant time to visit Europe and you were getting nearly 1.45 Euros for the pound. However, this fell to 1.25 as the fear of a Brexit caused the pound to fall. It is now recovering a little and the current exchange rate is If you think that Brexit will indeed occur then Sterling should fall dramatically and you

9 should convert into Euros now. If you think that the vote will be to remain, it is probably better to wait as we may see the rate go back upto 1.4 again.. SPOTLIGHT ON THE CF WOODFORD EQUITY INCOME FUND Neil Woodford is one of the most respected fund managers in the UK. His disciplined, valuation-oriented approach has consistently delivered outstanding long-term performance. Neil announced he was leaving Invesco Perpetual in October 2013 to set up his own fund management business. He joined the company on 1 May 2014 and his new fund the CF Woodford Equity Income fund was launched on 2 June His fund is included within all our portfolios. What s the performance been like? In a nutshell, outstanding. Since it launched in June 2014 it has grown by over 18% which compares to the FTSE100 falling 1.24% and the average fund in the sector growing by 3.6% (left hand side chart). The chart to the right shows Neil Woodfords performance including all the funds he has ever managed. CF Woodford Equity Income Neil Woodford Long Term What is special about this fund? The fund invests in what we would term as quality companies. These types of companies have strong cash flow, pay high dividends and have strong balance sheets. Long term, quality companies (green line) have outperformed significantly around the world which can be demonstrated from the chart below:

10 We have also added in the long term performance of Neil Woodford (blue line) and you can see that an index tracking all of the quality global companies (green line) has outperformed. This is not a fair comparison as Neil Woodford only invests in UK companies but does demonstrate that buying quality companies works. Will it continue to outperform? The fund has underperformed the sector by 2.3% over the last three months and we should always expect quality companies and fund managers to underperform from time to time. However, we believe that his process and expertise will continue to ensure that long term performance remains good. The reasons why we invest in the fund are not only great performance but the fact that the fund tends to fall less than others when we see a decline in stock markets. In view of the uncertainty surrounding Brexit, we feel that investing in quality companies will protect us if we see a market downturn. Please remember that past performance is no guarantee to future performance.

11 WHAT RISK ARE YOU TAKING WITH YOUR MONEY? One of the most important factors that affect the returns on your portfolio is the risk that you are taking. Our objective is to reduce the risk of your portfolio during the bad times and increase it during the good times, so that we protect your wealth in the bad investment periods and you remain invested and benefit from the good investment periods. If this is achieved successfully then the overall risk to your portfolio will reduce and your losses will be minimised during the bad times. But how do we measure the risk that you are taking? The best measure is something called volatility. This is simply a measure of how much your portfolio moves on a daily/weekly basis. For example, if a portfolio grows by 10% in a month and then falls by 5% the next it is much more volatile than a portfolio that grows by 2.5% in each of the two months. So what are the risks in our portfolios? As our investment philosophy follows a trend-following investment strategy you should expect volatility to increase after a strong period of stock market returns. Over the last year the volatility of our portfolios is significantly higher than their Benchmarks. However, over an investment cycle you should expect the volatility to be close to the Benchmarks, which is what we have experienced. This is because during poor investment periods investment volatility should be much lower and this will offset the higher volatility seen during good investment periods. Broom Consultants Investment Portfolios 1 Year Volatility Volatility Since Launch Benchmark Funds 1 Year Volatility Volatility Since Launch Cautious Cautious Balanced Balanced Adventurous Adventurous Dynamic Equity * Dynamic Equity * Foundation * Foundation * By comparison, the UK Stock Market FTSE 100 has a volatility of over 1 year and since launch and the Emerging Market Equities Benchmark has a volatility of over 1 year and since launch. *Please note that the Foundation and Dynamic Equity portfolios launch date was different to the Cautious, Balanced and Adventurous.

12 FINAL COMMENT The final comment can be summed up by a repeat of last month s comment: Stock markets are at a pivotal point and some look like they could move significantly higher. However, there are also some where the chart patterns look poor and we await which pattern will win. We are less cautious than last month in our investment approach but still have higher than normal weightings in cash, defensive equities and property in most of the portfolios. This will change if we see more stock markets break into upward trends. The news will be full of Brexit and the implications for us, but we must remember that the most important factor affecting our wealth is the global economy and this is still growing in a slow but steady way. Broom Consultants Limited Sterling Court, 4 Gresham Road, Brentwood, Essex. CM14 4HN Tel No Authorised & Regulated by the Financial Conduct Authority Please note that this document does not constitute a recommendation. It is intended only to provide you with a guide to how Broom Consultants manages client money. 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 Broom Consultants 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. All figures and charts are provided by Financial Express.