Quarterly technical update

Transcription

1 For investment professionals only Quarterly technical update Model portfolios and Optima funds Q Professional investment partners

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3 Asset allocation Central banks withdrawing stimulus Investors now expect less economic stimulus from central banks. The US Federal Reserve is already a distance down that path, with plans for more rate rises and a slower pace of reinvestment of maturing bonds which will gradually shrink its balance sheet. The European Central Bank s bond purchases are set to slow down and the Bank of England has raised its base rate back to 0.5%. Markets have so far taken these changes very much in their stride. While interest rates are unlikely to rise back to their long-term averages, it is quite possible that monetary conditions will tighten further and faster than markets currently anticipate. We therefore continue to take a cautious view of bond markets, holding a number of funds with low sensitivity to interest rate changes, together with strategic bond funds which can take advantage of opportunities when they occur, but control risk at other times. Our low fixed interest weightings are complemented by cash funds, which provide a good degree of security and act as ballast in the portfolio and by property and infrastructure holdings which provide good income yields. Equity valuations remain high Equity markets have stayed at high levels over recent months. On one hand there is support from continued optimism on the state of the world economy and the potential for growth and inflation to return to more normal levels. On the other hand the markets expect that if economic data does not improve sufficiently then central bank stimulus is likely to continue and anticipated interest rate rises will be delayed. Both would generally be positive for equities in the short term. Company earnings have ticked upwards and corporate sentiment remains solid, although companies which have disappointed the market have seen their valuations punished. This has been exacerbated by thin trading volumes. Equities are trading at high valuations however, so there is limited room for further sustainable rises in equity markets unless growth picks up significantly. Trump s planned tax reforms to impact US economy over longer term At the end of September President Trump finally revealed the details of his long-expected tax reform plans. These include simplifications for individuals and a lower rate of corporation tax, coupled with a minimum level of tax to be paid on overseas profits. There is significant optimism that these reforms could boost the US economy, and they are progressing well through Congress, but they may be phased in over several years, which could limit their immediate impact. UK equities have attractive relative valuations We believe that the UK equity market represents an attractive opportunity and are continuing to invest a good proportion of our equity exposure in the UK. It has a good selection of attractive companies exposed to both the British domestic economy and the broader world. However with valuations held back by fears of Brexit, UK stocks are more reasonably priced than many other markets, especially the US, and offer higher dividend yields. This has led to lower returns for some of our existing holdings, but provides a good opportunity for the future. There are certainly political risks in the UK as the Brexit negotiations inch forwards, however our focus is on gaining exposure to companies with solid fundamentals at reasonable valuations, as it is this which drives long-term returns. Sterling has also declined significantly over the last two years and is likely to strengthen as more clarity emerges from the Brexit negotiations, which could provide a useful tail-wind. 1

4 Strategic and tactical asset allocation % for each mandate Asset classes 1 of 7 2 of 7 3 of 7 4 of 7 5 of 7 6 of 7 7 of 7 Equity Max Min Current Alternatives Max Min Current Fixed income Max Min Current Cash Max Min Current Current weightings for each mandate n UK equity Mandate 1 of 7 Mandate 2 of 7 Mandate 3 of 7 n International n Continental Europe n USA n Japan n Emerging & Asia (ex Jpn) Mandate 4 of 7 Mandate 5 of 7 Mandate 6 of 7 n UK commercial property n Infrastructure n Hedge funds n Sovereign bonds n Corporate bonds Mandate 7 of 7 n Cash / trading liquidity 2

5 Current weighting % for each mandate Sector allocations 1 of 7 2 of 7 3 of 7 4 of 7 5 of 7 6 of 7 7 of 7 Equity United Kingdom Large & mid cap Small cap International Large cap Small cap Private equity Continental Europe USA Japan Emerging & Asia (ex Jpn) Total equity Alternative assets UK commercial property International Commercial Property Infrastructure Commodities Gold Hedge funds Total alternative assets Fixed interest Sovereign bonds Corporate bonds Investment Grade Strategic High Yield & EM bonds Total fixed interest Cash Cash / trading liquidity Total cash Total Source of all asset allocation data: Thesis Asset Management as at 30/09/17. Please remember that our asset allocations may have changed since quarter end. 3

6 Attribution Bond returns were determined by risk profile for Q as gilts and index-linked gilt funds suffered the worst losses of GBP-denominated bond funds (IA UK Gilts: -0.59%, IA UK Index Linked Gilt: -0.64%) whilst high yield topped the pack returning +1.6% (IA High Yield). Strategic managers on average were able to outperform the corporate bond space, in part due to their higher natural allocation to high yield. These performances were set against a back drop of global bonds returning just over zero (IA Global Bonds: +0.09%) Thesis achieved robust fixed income performances, especially considering our zero weighting to high yield funds. Our fixed income blends produced returns between +0.79% and +0.91% depending on risk mandate, all Thesis fixed income allocations therefore outperforming every IA fixed income sector, IA High Yield withstanding. The strong performances posted by our fixed income blends were underpinned by our top quartile across the board strategic bond fund holdings. All three strategic bond funds (Henderson Strat Bond, Muzinich Global Tactical Credit and Twentyfour Dynamic Bond) were top quartile for the quarter, returning +0.91%, 0.96% and +1.75% respectively. Infrastructure investments as a universe had a bad quarter with the FTSE Developed Country Core Infrastructure 50/50 index making losses of -0.77% for the period. Thesis holdings were a mixed bag, with securities investors enjoying a strong performance from 3i Infrastructure and INPP (+1.73% and 1.89%) whilst our collective infrastructure investments produced returns between -1.36% and +4.16% (VT Gravis UK Infrastructure Fund and Lazard Global Listed Infrastructure). Emerging market equity had a volatile quarter but ultimately produced solid total returns, the largest component in the EM space; China led the way with the IA China Peer Group returning +7.43%. Smaller companies in the UK, Europe and Japan outperformed their largecap peers driven by economic positivity. US equity markets, although having a moderately good quarter in US$ terms returned little to sterling investors as the dollar weakened against the pound for the duration of the period. Equity allocations to Europe and Japan within our mandates were buoyed by the continued inclusion of hedged share classes, which protected investors from the strengthening pound during the quarter. Active decisions in the global equity sector; allocating to a value-index tracker and a small-cap index tracker also led to a top quartile performance across all Thesis blends. Specifically the UBS FTSE RAFI Developed 1000 ETF returned +2.49% whilst the Vanguard Global Small-Cap Index returned +2.79%, whereas the FTSE All World Index over the same period returned +1.9%. A significant allocation for Thesis client portfolios; UK equities was a mixed bag for Q3. Collective model investors in mandates 2 through 7 received between 1.31% and 1.67% whilst 1 of 7 (with only a 1% allocation to Invesco Perpetual Strategic Income) lost -0.47%. The Invesco Perpetual fund, managed by Mark Barnett, suffered some stock-specific issues such as Provident Financial restructuring their debt-collection business and BT which was marred with a raft of problems in a short period of time. Hedge funds, or absolute return funds, performed in line with their given risk mandate in Q3. Our lowest risk cash plus style absolute return funds produced just on the right side of positive, whilst our highest risk rated hedge fund returned a sector topping +4.21% for the period. Client portfolios exposure to absolute return netted between +0.15% and +4.21%, mandate dependant. 4

7 Performance and risk data The following section includes risk and performance data for the last calendar quarter. Model portfolios performance is shown gross of all fees. Optima funds performance is shown net of annual management charge for the specific share class. The impact of additional fees on an investment will vary depending on the platform or wrap used to hold the portfolio, and on the amount charged for financial advice. Thesis portfolios are not managed with the aim of matching or outperforming benchmark performance. Benchmark data is included to show how portfolios with different weightings of a mix of asset classes performed over the same time periods. Source of data unless otherwise stated: Morningstar, total returns, sterling terms. Collectives portfolios: diversified portfolios corresponding to our mandates 1-7. Holdings are predominantly actively managed funds, giving the potential to outperform the wider market Securities portfolios: diversified portfolios corresponding to our mandates 3-7. The UK equity allocation is held in securities rather than in funds, which reduces costs, especially in the higher risk, higher equity content portfolios Passives portfolios: diversified portfolios corresponding to our mandates 1-7. Holdings are predominantly passive and tracker funds, typically lower cost and with less tracking error than actively managed funds Optima funds: three funds corresponding to our mandates 2, 4 and 6. Each holds a diversified range of underlying funds and UK shares, and is designed to achieve income, capital growth or both Risk and investment objectives Wealth preservation Wealth accumulation Portfolio 1 of 7 2 of 7 3 of 7 4 of 7 5 of 7 6 of 7 7 of 7 Risk appetite: Low/moderate risk I can accept small, short term losses, but am still concerned about the safety of my investment. Moderate risk I am seeking a balance between safety and investment growth potential. Moderate/high risk I am seeking investment growth and am prepared to accept some losses for potentially higher growth. High risk I am willing to accept significant risk and potential losses in the pursuit of higher long term investment growth. Attitude to capital loss: Low/moderate risk Taking some short term drop in value in an effort to achieve higher long term returns is acceptable. I would prefer the majority of my capital to be held in conservative investments. Moderate risk Achieving a balance between conservative and higher returns is my aim and I accept that there will be a degree of short term value fluctuation. Moderate/high risk Seeking higher long term returns is important to me, so I am willing to accept the substantial short term drops in value that may result from investing in more speculative investments. High risk Maximising long term investment returns is my main objective and I am willing to accept large and sometimes dramatic short term drops in value. Investment objectives: I am seeking only a high level of income and do not require any prospects of capital growth. I am seeking a reasonable level of income and limited capital growth prospects. I am primarily seeking income and some capital growth prospects. I am seeking income together with a reasonable degree of capital growth. I am primarily seeking capital growth with some requirement for income. I am primarily seeking capital growth with limited requirement for income. I am primarily seeking to maximise capital growth over the medium to longer term. 5

8 Model portfolios collectives All data to 30/09/17 Key data Approx number of holdings (funds) Rebalanced Quarterly Strategy manager Steven Richards Charges Dependent on platform and mandate Availability 7IM, Ascentric, Aviva, Fusion, Novia, Nucleus, Standard Life, Thesis, Transact Three year annualised performance data Return % Std dev % Excess return Beta Sharpe Ratio Max drawdown % Collectives 1 of Markit iboxx GBP Overall TR Collectives 2 of Collectives 3 of FTSE UK Private Investor Conserv TR GBP Collectives 4 of FTSE UK Private Investor Income TR GBP Collectives 5 of FTSE UK Private Investor Balanced TR GBP Collectives 6 of FTSE UK Private Investor Growth TR GBP Collectives 7 of FTSE UK Private Investor Gbl Grw TR GBP Drawdown Maximum drawdown in last 3 years (%) Volatility Rolling 12 month standard deviation (%) n Collectives 1 of 7 n Collectives 2 of 7 n Collectives 3 of 7 n Collectives 4 of 7 n Collectives 5 of 7 n Collectives 6 of 7 n Collectives 7 of

9 Cumulative returns (%) Discrete period returns (%) 01/10/16-30/09/17 3 months 1 year 3 years 5 years Collectives 1 of Markit iboxx GBP Overall TR Collectives 2 of Collectives 3 of FTSE UK Private Investor Conserv TR GBP Collectives 4 of FTSE UK Private Investor Income TR GBP Collectives 5 of FTSE UK Private Investor Balanced TR GBP Collectives 6 of FTSE UK Private Investor Growth TR GBP Collectives 7 of FTSE UK Private Investor Gbl Grw TR GBP /10/15-30/09/16 01/10/14 30/09/15 01/10/13 30/09/14 01/10/12 30/09/13 Collectives 1 of Markit iboxx GBP Overall TR Collectives 2 of Collectives 3 of FTSE UK Private Investor Conserv TR GBP Collectives 4 of FTSE UK Private Investor Income TR GBP Collectives 5 of FTSE UK Private Investor Balanced TR GBP Collectives 6 of FTSE UK Private Investor Growth TR GBP Collectives 7 of FTSE UK Private Investor Gbl Grw TR GBP

10 Model portfolios securities All data to 30/09/17 Key data Approx number of holdings (funds) Approx number of holdings (securities) Rebalanced Quarterly Strategy manager Steven Richards Charges Dependent on platform and mandate Availability 7IM, Ascentric, Fusion, Standard Life, Thesis, Transact Three year annualised performance data Return % Std dev % Excess return Beta Sharpe Ratio Max drawdown % Securities 3 of FTSE UK Private Investor Conserv TR GBP Securities 4 of FTSE UK Private Investor Income TR GBP Securities 5 of FTSE UK Private Investor Balanced TR GBP Securities 6 of FTSE UK Private Investor Growth TR GBP Securities 7 of FTSE UK Private Investor Gbl Grw TR GBP Drawdown Maximum drawdown in last 3 years (%) Volatility Rolling 12 month standard deviation (%) n Securities 3 of 7 n Securities 4 of 7 n Securities 5 of 7 n Securities 6 of 7 n Securities 7 of

11 Cumulative returns (%) 3 months 1 year 3 years 5 years Securities 3 of FTSE UK Private Investor Conserv TR GBP Securities 4 of FTSE UK Private Investor Income TR GBP Securities 5 of FTSE UK Private Investor Balanced TR GBP Securities 6 of FTSE UK Private Investor Growth TR GBP Securities 7 of FTSE UK Private Investor Gbl Grw TR GBP Discrete period returns (%) 01/10/16-30/09/17 01/10/15-30/09/16 01/10/14 30/09/15 01/10/13 30/09/14 01/10/12 30/09/13 Securities 3 of FTSE UK Private Investor Conserv TR GBP Securities 4 of FTSE UK Private Investor Income TR GBP Securities 5 of FTSE UK Private Investor Balanced TR GBP Securities 6 of FTSE UK Private Investor Growth TR GBP Securities 7 of FTSE UK Private Investor Gbl Grw TR GBP

12 Model portfolios passives All data to 30/09/17 Key data Approx number of holdings (funds) Rebalanced Quarterly Strategy manager Steven Richards Charges Dependent on platform and mandate Availability Standard Life, Thesis, Transact Three year annualised performance data Return % Std dev % Excess return Beta Sharpe Ratio Max drawdown % Passives 1 of Markit iboxx GBP Overall TR Passives 2 of Passives 3 of FTSE UK Private Investor Conserv TR GBP Passives 4 of FTSE UK Private Investor Income TR GBP Passives 5 of FTSE UK Private Investor Balanced TR GBP Passives 6 of FTSE UK Private Investor Growth TR GBP Passives 7 of FTSE UK Private Investor Gbl Grw TR GBP Drawdown Maximum drawdown in last 3 years (%) Volatility 15 Rolling 12 month standard deviation (%) n Passives 1 of 7 n Passives 2 of 7 n Passives 3 of 7 n Passives 4 of 7 n Passives 5 of 7 n Passives 6 of 7 n Passives 7 of

13 Cumulative returns (%) 3 months 1 year 3 years 5 years Passives 1 of Markit iboxx GBP Overall TR Passives 2 of Passives 3 of FTSE UK Private Investor Conserv TR GBP Passives 4 of FTSE UK Private Investor Income TR GBP Passives 5 of FTSE UK Private Investor Balanced TR GBP Passives 6 of FTSE UK Private Investor Growth TR GBP Passives 7 of FTSE UK Private Investor Gbl Grw TR GBP Discrete period returns (%) 01/10/16-30/09/17 01/10/15-30/09/16 01/10/14 30/09/15 01/10/13 30/09/14 01/10/12 30/09/13 Passives 1 of Markit iboxx GBP Overall TR Passives 2 of Passives 3 of FTSE UK Private Investor Conserv TR GBP Passives 4 of FTSE UK Private Investor Income TR GBP Passives 5 of FTSE UK Private Investor Balanced TR GBP Passives 6 of FTSE UK Private Investor Growth TR GBP Passives 7 of FTSE UK Private Investor Gbl Grw TR GBP

14 Optima funds income All data to 30/09/17 Key data Strategy launch date 30/11/05 Fund inception date 24/06/11 Approx number of underlying holdings Strategy manager Steven Richards Availability Alliance Trust, Ascentric, Aviva, AXA Elevate, Novia, Nucleus, Standard Life, Thesis, Transact ISIN Cumulative returns (%) Income B Acc GB00B8FLKT29, Income B Inc GB00B86V9726 Optima fund 3 months 1 year 3 years 5 years Optima Income B Acc Optima Income B Inc FTSE UK Private Investor Conserv TR GBP Discrete period returns (%) 01/10/16-30/09/17 01/10/15-30/09/16 01/10/14 30/09/15 01/10/13 30/09/14 01/10/12 30/09/13 Optima Income B Acc Optima Income B Inc FTSE UK Private Investor Conserv TR GBP Three year annualised performance data Return % Std dev % Excess return Beta Sharpe Ratio Max drawdown % Optima Income B Acc Optima Income B Inc FTSE UK Private Investor Conserv TR GBP Drawdown Maximum drawdown in last 3 years (%) Volatility Rolling 12 month standard deviation (%) n Optima Income B Acc n Optima Income B Inc Performance shown before 19/11/2012, when the Optima B share class was launched, is simulated past performance based on the actual performance of the Optima A share class 0 12

15 Optima funds balanced All data to 30/09/17 Key data Strategy launch date 30/11/05 Fund inception date 24/06/11 Approx number of underlying holdings Strategy manager Steven Richards Availability Alliance Trust, Ascentric, Aviva, AXA Elevate, Novia, Nucleus, Standard Life, Thesis, Transact ISIN Cumulative returns (%) Balanced B Acc GB00B8W0DX73, Balanced B Inc GB00B8W05084 Optima fund 3 months 1 year 3 years 5 years Optima Balanced B Acc Optima Balanced B Inc FTSE UK Private Investor Income TR GBP Discrete period returns (%) 01/10/16-30/09/17 01/10/15-30/09/16 01/10/14 30/09/15 01/10/13 30/09/14 01/10/12 30/09/13 Optima Balanced B Acc Optima Balanced B Inc FTSE UK Private Investor Income TR GBP Three year annualised performance data Return % Std dev % Excess return Beta Sharpe Ratio Max drawdown % Optima Balanced B Acc Optima Balanced B Inc FTSE UK Private Investor Income TR GBP Drawdown Maximum drawdown in last 3 years (%) Volatility Rolling 12 month standard deviation (%) n Optima Balanced B Acc n Optima Balanced B Inc Performance shown before 19/11/2012, when the Optima B share class was launched, is simulated past performance based on the actual performance of the Optima A share class 0 13

16 Optima funds growth All data to 30/09/17 Key data Strategy launch date 30/11/05 Fund inception date 24/06/11 Approx number of underlying holdings Strategy manager Steven Richards Availability Alliance Trust, Ascentric, Aviva, AXA Elevate, Novia, Nucleus, Standard Life, Thesis, Transact ISIN Cumulative returns (%) Growth B Acc GB00B8H9DG27, Growth B Inc GB00B8W50080 Optima fund 3 months 1 year 3 years 5 years Optima Growth B Acc Optima Growth B Inc FTSE UK Private Investor Growth TR GBP Discrete period returns (%) 01/10/16-30/09/17 01/10/15-30/09/16 Return % Std dev % Excess return 01/10/14 30/09/15 Beta 01/10/13 30/09/14 Sharpe Ratio 01/10/12 30/09/13 Optima Growth B Acc Optima Growth B Inc FTSE UK Private Investor Growth TR GBP Three year annualised performance data Max drawdown % Optima Growth B Acc Optima Growth B Inc FTSE UK Private Investor Growth TR GBP Drawdown Maximum drawdown in last 3 years (%) Volatility Rolling 12 month standard deviation (%) n Optima Growth B Acc n Optima Growth B Inc Performance shown before 19/11/2012, when the Optima B share class was launched, is simulated past performance based on the actual performance of the Optima A share class 0 14

17 Important information This update is for information only and is not an invitation to engage in investment activity. Past performance is not a guide to future performance. The value of an investment and any income from it can go down as well as up. Investors may not get back the amount they invest. Portfolios may invest substantially in other funds and these risks may apply to the underlying assets of the funds into which they invest. Investments denominated in overseas currencies can be affected by movements in exchange rates which can cause the value to go up or down. Bonds are subject to the risk of the issuer defaulting on the income payments or on the capital when the loan matures. Bond values can be affected by movements in interest and inflation rates. Performance and risk data is simulated and relates to Thesis internal models, calculated on a total return basis before fees and should only be taken as indicative of performance for portfolios constructed according to this strategy. While considerable care has been taken to ensure the information contained within this document is accurate, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions or any action taken on the basis of this information. Thesis Unit Trust Management Limited (a subsidiary company of Thesis Asset Management Limited) is the Authorised Fund Manager of the Optima Income Fund, Optima Balanced Fund and Optima Growth Fund and is authorised and regulated by the Financial Conduct Authority. It can be difficult to value property holdings accurately, as there may be no readily available market for their disposal, and calculating the price is not as straightforward as it is for more liquid equities that are traded daily on recognised stock exchanges. 15

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20 Contact us Lawrence Cook Director of Marketing and Business Development T: M: E: Stephen Neal Regional Director T: M: E: Ian Hunter Regional Director T: M: E: Paul Hastings Regional Director T: M: E: Head Office Exchange Building, St John s Street, Chichester PO19 1UP Tel: Brighton: Guildford: Lymington: Issued by Thesis Asset Management Limited. Head office: Exchange Building, St John s Street, Chichester PO19 1UP. Authorised and regulated by the Financial Conduct Authority. The value of an investment and the income from it can fall as well as rise, and investors may not receive back the amount they invest. Past performance is not a guide to the future. Dec TAM1712_05