Investing in 2018 Swings and Roundabouts

Transcription

1 Investing in 2018 Swings and Roundabouts

2 Today s speakers Mike Ingram - Chief Market Strategist, London In a City career spanning nearly 25 years, Michael has advised some of world s largest institutional and hedge fund investors and was an early proponent of a holistic, multi-asset investment framework. During his tenure, Michael has worked for banks such as ABN-Amro, HSBC, Santander and RBS in addition to one of the world s largest interdealer brokers, BGC. In the last five years, Michael has been a frequent contributor to both the financial and general media, appearing on Reuters, Bloomberg, CNBC, BBC, and Channel 4, in addition to various print media. Michael joined WHIreland in 2017 as Chief Market Strategist. John Goodall - Head of Private Client Research, Manchester John is a Chartered Member of the Chartered Institute for Securities and Investment, and holds the CISI Diploma. He is also a CFA Charterholder. John is the head of Private Client Research. John read Classics at Durham University, and attained a Master s Degree in Business and Management from the University of Strathclyde. He began his career trading for Spreadex, before moving to Tilney in 2005 to work in investment management. John joined the Private Client Research team at WHIreland in Page 2

3 A Look Back At 2017 Market Expectation Secular Stagnation Stronger US outlook EU existential crisis Japanese stagnation Bond market Armageddon Brexit uncertainty 2017 Outcome Goldilocks global economy No Trump bump Solid performance Respectable growth Another year of positive returns Brexit uncertainty Page 3

4 Asset Class Performance WH Ireland Wealth Management Returns underpinned by more co-ordinated economic growth, corporate earnings and increased confidence. US Dollar surprisingly lost ground. Emerging World Equities International Equities Developed World Equities UK Equities Alternatives Corporate Bonds Real Estate 2017 Total Return Estimate (GBP) 2017 Total Return Actual (GBP) 2018 Total Return Estimate (GBP) Inflation-Linked Bonds Government Bonds Cash Source: Bloomberg, WHIreland calculations 0% 5% 10% 15% 20% 25% 30% Cash: GBP 1W LIBOR-1% with floor of 0%, Government Bonds: Markit Iboxx GBP Gilts, Corporate Bonds: Markit Iboxx GBP Corporates, Inflation-Linked Bonds: Markit Iboxx GBP UK Gilt Inflation-Linked, UK Equities: MSCI UK IMI, International Equities: MSCI All Country World Ex-UK, Developed World Equities: MSCI World, Emerging World Equities: MSCI Emerging Markets, Real Estate: MSCI UK IMI Liquid Real Estate, Alternatives: MSCI World Diversified Multiple Factor Index + Cash Page 4

5 2018: More Porridge for Goldilocks? 5.5% Global CPI Inflation (%) Global Real GDP Growth (%) 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% E 2018F Source: Bloomberg, WHIreland calculations Page 5

6 US Into the Ninth Innings Length of Historic US Expansions Since The Current Cycle from June 2009 is 102 months old Length of Expansion (months) Source: National Bureau of Economic Research Page 6

7 Hundreds Interest Rates Creep Higher. 8% 7% Global Policy Rate (%) Developed Market Policy Rate (%) Emerging Market Policy Rate (%) 6% 5% 4% 3% 2% 1% 0% May 2010 May 2011 May 2012 May 2013 May 2014 May 2015 May 2016 May 2017 May 2018 Source: Bloomberg, IMF, WHIreland calculations Page 7

8 ($bn) Global Quantitative Easing (QE) vs. Global Equity $18000 $16000 $14000 $12000 SNB QE ($bn, LHS) BoE QE ($bn, LHS) ECB QE ($bn, LHS BoJ QE ($bn, LHS) FED QE ($bn, LHS) MSCI World Equity Total Return Index (RHS) $10000 $8000 $ $ $ $ Source: Bloomberg, WHIreland calculations Page 8

9 Global Debt by Region G r o s s D e b t G20 Advanced Economies China G20 Emerging Economies, ex China % G D P Source: IMF, WHIreland calculations Page 9

10 Bringing it all Together Opportunities Europe: earlier stage in the economic cycle leaves scope for further upside Emerging Markets: long-term growth opportunities, although becoming more widely owned Property: solid income yields with many Real Estate Investment Trusts (REITs) trading at deep discounts to Net Asset Value (NAV) Alternatives: global infrastructure to benefit from government policy and inflation-linked returns Risks UK: weak near-term growth to weigh on prospects US: excessive valuations becoming difficult to justify Fixed Income: monetary policy turnaround could change rate environment Page 10

11 Opportunity: Europe 4% 13% 3% 2% 12% 1% 11% 0% -1% 10% -2% -3% -4% -5% GDP growth (%, LHS) Unemployment (%, RHS) 9% 8% -6% % Source: Eurostat Page 11

12 ( bn) Opportunity: Property 15% 10% Premium/Discount to NAV (LHS) Total NAV ( bn, RHS) 70 5% 0% 65-5% -10% 60-15% -20% 55-25% -30% -35% 50-40% -45% Basket of selective UK Real Estate Investment Trusts (REITS) shown: British Land, Great Portland Estates, Intu Properties, Land Securities, Segro, Shaftesbury, Unite, Workspace. Price data as at end of June each year against Net Asset Value at financial year end. Source: Capital IQ Page 12

13 Risk: US Equity Valuations S&P 500 Index vs. CAPE Shiller Price/Earnings S & P ( l o g s c a l e ) Current Value = C A P E S h i l l e r P / E Source: Yale University - Page 13

14 Risk: UK Consumers Sending Mixed Messages Households remain confident of their personal finances, but are worried about the broader UK economy GFK UK Consumer Confidence Economic Situation Next 12 months Future Personal Finances Household Current Financial Situation Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Source: Bloomberg Page 14

15 Strategy Balanced Asset Portfolio Summary Weightings vs. Benchmark Asset Class Position Asset Class Position Equity Cash UK Fixed Income US Gilts Europe Corporates Japan Index Linked Emerging Property Far East Alternatives Overweight Underweight Neutral Page 15

16 Keep up to date twitter.com/whirelandwm For regular updates on how we see world markets, delivered straight to your inbox, subscribe to our Insights series at our website. Page 16

17 Appendix 1: Growth in 2017 As Good as it Gets? Upgrades to Europe, Japan and Emerging Markets Support Global Growth F* 2017E** 2018F* World 3.2% 3.2% 3.6% 3.7% US 1.5% 2.2% 2.3% 2.6% Eurozone 1.8% 1.4% 2.3% 2.1% Japan 1.0% 1.0% 1.7% 1.3% China 6.7% 6.5% 6.8% 6.5% UK 1.8% 1.2% 1.5% 1.4% *Initial forecast ** Current estimate for year Source: Bloomberg private sector aggregate estimates Page 17

18 Appendix 2: Inflation Failure to Launch Weak Headline CPI Progression has led to Cautious monetary normalisation. Core CPI measures show even less momentum F* 2017E** 2018F* World 2.8% 3.2% 3.1% 3.1% US 1.3% 2.3% 2.1% 2.2% Eurozone 0.2% 1.3% 1.5% 1.5% Japan -0.1% 0.6% 0.5% 0.8% China 2.0% 2.2% 1.6% 2.3% UK 0.7% 2.4% 2.7% 2.5% *Initial forecast ** Current estimate for year Source: Bloomberg private sector aggregate estimates Page 18

19 Appendix 3: Index Returns, Earnings and Multiples FTSE 350 investors patience has finally been rewarded by better earnings growth in 2017, though momentum is expected to fade in 2018 After years of low/declining earning in Europe and multiple expansion, EPS is now growing on a broad front Likewise, the US earnings recession of is over. Investors preference for growth has led to no de-rating. These charts show the combined effect on P/E ratios, index price and EPS changes. 20% 15% 10% 5% 0% -5% -10% -15% PER EPS FTSE % 11.0% 3.9% -2.2% -2.8% E 2018F 15% 10% 5% PER EPS STOXX Europe 600 Return 6.8% 4.4% 7.0% 8.0% 20% 15% 10% PER EPS S&P 500 Return 11.4% 9.5% 17.5% 7.8% 0% -1.2% 5% -5% 0% -0.7% -10% E 2018F -5% E 2018F Source: Bloomberg, WHIreland calculations Page 19

20 Appendix 4: Index Returns, Earnings and Multiples NASDAQ earnings growth rebounded strongly in 2017, though is expected to slow significantly next year. Japan has benefitted from a somewhat weaker Yen, a rebound in international trade and better domestic growth. Emerging equities exited a five year bear market at the end of 2015 as investors anticipated a trough in the earnings cycle. This has been broadly confirmed in These charts show the combined effect on P/E ratios, index price and EPS changes. 50% 40% 30% 20% 10% 0% -10% PER EPS NASDAQ 100 Return 28.8% 17.9% 13.2% 8.4% 5.9% E 2018F 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% PER EPS Nikkei 225 Return 16.0% 7.1% 9.1% 8.5% 0.4% E 2018F 40% 30% 20% 10% 0% -10% -20% PER EPS MSCI EM Return 29.6% 16.2% 8.6% -4.6% -17.0% E 2018F Source: Bloomberg, WHIreland calculations Page 20

21 Appendix 5: Index Sectors and Earnings Growth Strong rebound in Energy and Materials earnings across major markets, driven by some commodity price appreciation and corporate restructuring. Recovery in cyclical sectors more pronounced in Europe as a lagging economy Despite the US leading the cycle, earnings expected to be supported in 2018 by tax cuts and deregulation. Energy Materials Consumer Staples Technology Industrials Consumer Discretionary Healthcare Telecomms Financials Utilities FTSE 350 EPS % Growth 2017E 2018E -20% -5% 10% 25% 40% STOXX Europe 600 EPS % Growth S&P 500 EPS % Growth Energy Technology Consumer Discretionary Materials Telecomms Industrials Healthcare Financials Utilities Consumer Staples 2017E 2018E Energy Technology Telecomms Healthcare Industrials Consumer Staples Financials Materials Consumer Discretionary Utilities 2017E 2018E -5% 10% 25% 0% 15% 30% 45% 60% Source: Bloomberg, WHIreland calculations Page 21

22 Appendix 6: Index Sectors and Earnings Growth Investors continued preference for Growth exposure via NASDAQ appears to have been well supported by earnings, though this will slow significantly in 2018 Technology Healthcare NASDAQ 100 EPS % Growth In Japan, beyond the global themes of commodity reflation and technological disruption, lie a number of restructuring stories in lower beta sectors. Telecomms Financials Consumer Discretionary 2017E 2018E Emerging Markets generally lag the global economic cycle and should continue to show high growth in 2018 Consumer Staples Industrials 0% 25% 50% Nikkei 225 EPS % Growth MSCI Emerging Markets EPS % Growth Energy Telecomms Consumer Staples Technology Consumer Discretionary Healthcare Financials Industrials Utilities Materials 2017E 2018E Energy Telecomms Consumer Staples Technology Consumer Discretionary Healthcare Financials Industrials Utilities Materials 2017E 2018E -15% 10% 35% 60% -30% -5% 20% 45% 70% 95% 120% 145% Source: Bloomberg, WHIreland calculations Page 22

23 Appendix 7: Bitcoin Goes Ballistic The Epicentre of Excess? Bitcoin Price (USD) Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Source: Bloomberg, WHIreland calculations Page 23

24 Appendix 8: UK Interest Rates Rise A False Dawn? Little appetite or capacity to raise rates due to the quantum of debt 160% Growth of UK Consumer Debt vs. Average Earnings % 120% 100% 80% 60% 40% 20% 0% Source: WHIreland/Office for National Statistics/Bank of England Page 24

25 Appendix 9: US Confidence Remains High 2700 S&P 500 (LHS) 65% Probability (%) of Stock Increase(RHS) 60% % % % % % Source: University of Michigan % Page 25

26 Important information & risks Important information & risks This document is intended for information purposes only and has not been prepared with the specific objectives, financial situation or needs of any one particular client in mind. It has been prepared for use by Retail Clients as defined by the FCA. It does not constitute investment advice, a recommendation or a solicitation and cannot be used as the basis for any contract to purchase an investment. Except in so far as liability under any statute cannot be excluded, neither WHIreland nor any officer, employee or associate accepts any liability (whether arising in contract, in tort, negligence or otherwise) for any error or omission in this document. We provide advice on a restricted basis based on a broad analysis of different types of investment including equities, government and fixed interest securities and most retail investment products, such as investment trusts, unit trusts, structured products and other collective investment schemes. Our advice is termed restricted under the FCA Rules because we do not provide advice on pensions or life assurance based products. However, we are not limited to choosing Investments or products issued or provided by providers with close links to us or any other form of close relationship (such as legal or economic) and we are able to choose from a wide range of providers. At WHIreland each client portfolio is unique in that it is tailored to the clients individual needs, objectives and financial circumstances. The Investment Manager responsible for the client s account will have control over the composition of the client portfolio from the asset allocation to the selection of individual securities. As your portfolio is unique to you the corresponding performance is also liable to vary based on the composition of holdings. When compared against similar portfolio mandates or benchmarks investments may behave differently. As a result of individual Investment Manager discretion you may outperform or underperform the average client portfolio and corresponding benchmark. Changes in exchange rates may have an adverse effect on the value, price or income of foreign currency denominated securities. Levels and bases of taxation can change. Investors who are resident in or citizens of countries other than the United Kingdom may be subject to local restrictions. Investments or investment services referred to may not be suitable for all recipients. The price of an investment will depend upon fluctuations in financial markets outside anyone's control. For more information about investment risks please consult our terms of business, or alternatively please contact your Investment Manager. The value of investments and income from them may go down as well as up and is not guaranteed and you may therefore not get back the amount you originally invested. It should be remembered that past performance is not necessarily a guide to future performance. For our mutual protection, telephone calls may be recorded and made available to you on request and such recordings may be used in the event of a dispute. WHIreland comprises WH Ireland Limited and WH Ireland (IOM) Limited which are wholly owned subsidiaries of WH Ireland Group plc. WH Ireland Limited is authorised and regulated in the UK by the Financial Conduct Authority, is registered in England & Wales with company number and is a member of the London Stock Exchange. In the Isle of Man, WHIreland International and WHIreland International Wealth are registered business names used by WH Ireland (IOM) Limited which is licensed by the Isle of Man Financial Services Authority. WHIreland and the WHIreland logo are registered trademarks. Page 26

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