Smith & Williamson Managed Portfolio Service

Transcription

1 Smith & Williamson Managed Portfolio Service Investment Review Q For professional advisers use only

2 Investment outlook UK equities performed strongly for sterling investors in 2016; however returns were far poorer for those whose assets are denominated in other major currencies There was a notable pick-up in bond yields in the US and the UK in Q4 in reaction to a 0.25% interest rate increase by the Fed, as well as more hawkish guidance on the number of rate rises in 2017 The biggest political hurdles in 2017 are likely to be seen in the Eurozone where the election timetable poses a number of opportunities for existential risks to the euro Sterling was the worst performing currency of 2016 despite staging a small comeback towards the end driven by stronger data and a weaker euro Oil prices surged in the fourth quarter following an agreement by OPEC to cut production in early 2017 Source:, Bloomberg and Thomson Reuters Datastream as at

3 Calendar Year Performance Summary The MPS Portfolios registered positive double-digit returns from 10% to 17% across the range during a challenging year for sterling based investors given the currency movements following the Brexit vote. The Growth and Dynamic Growth portfolios benefitted from their significant exposure to international shares where returns were enhanced by the falls in the value of the Pound. Hermes Global Emerging Markets and Schroders Asian Total Return were strongest in the Developing Markets area, delivering returns in excess of 30%. This was similar to the gains seen in the value of North American equity holdings once the strength of the US Dollar is factored in. UK active managers generally struggled during the first half of the year, proving woefully underexposed to the very largest companies in the index which benefitted from an instantaneous jump in the value of their international earnings at the end of June. Only the FTSE 100 tracker, added early in the year, kept pace in the first six months, with the rest of our UK managers lagging by 10% or more. Performance of the MPS s active UK holdings stabilised in the second half of the year. In Alternatives, whilst our listed property funds (Picton Property Income and UK Commercial Property) fell sharply following the Brexit vote, their open-ended counterparts suspended redemptions for most of the rest of the year. Picton in particular performed well delivering a total return in excess of 12% for the year. BH Macro had a stronger second-half, with full year returns of just under 6%. For Defensive and Defensive Income portfolios, bond markets proved almost as challenging with UK government bonds reversing sharply in August and the index falling more than 8% from its peak. We reduced our exposure to longer maturity Gilts before the reversal, locking in some of the gains seen as the Bank of England responded to Brexit. Towards the year end Corporate Bonds benefitted from increasing risk appetite associated with the election of Donald Trump in the US. 3

4 Risk rated models annual risk and return since inception Source: StatPro/ Morningstar Direct /Smith & Williamson as at MPS inception date

5 Performance Portfolio profile Distribution Technology Risk score 3 months (%) 3 months Multi-Asset Composite Benchmark (%) 6 months (%) 6 months Multi-Asset Composite Benchmark (%) 1 Year (%) 1 Year Multi-Asset Composite Benchmark (%) 3 Year (%) 3 Year Multi-Asset Composite Benchmark (%) Since launch (%)* Since launch Multi-Asset Composite Benchmark (%) Defensive Defensive Income Balanced Income Balanced Growth Growth Dynamic Growth Source: as at All figures total return only. * Launch date Benchmark: Smith & Williamson Multi- Asset Composite Benchmark. 5

6 Investment process simple but not easy The MPS team The Process The Result Your Smith & Williamson Portfolio James Burns Head of Investment Companies Research Strategic Asset Allocation Distribution Technology Risk Graded Tactical Asset Allocation Smith & Williamson Research Genevra Banszky von Ambroz, CAIA Open Ended Funds and Investment Companies Analyst Security Selection Open Ended Funds David Amphlett-Lewis Head of Passive Research Investment Companies Passives Supported by a network of over 55 investment professionals responsible for investment research. 6 Source: and StatPro as at

7 Defensive Portfolio Profile The strategy aims to preserve capital in inflation adjusted terms through investing up to 85% in defensive assets such as government bonds, corporate bonds and property. Up to 35% of the portfolio may be invested in global stock market investments subject to prevailing market conditions. Asset breakdown 10.5% 6.8% Product mix 15.1% 6.8% 15.2% S&W 3 - Defensive portfolio profile* Asset Class Portfolio (%) Benchmark (%) Active (%) Cash UK Bonds International Bonds Index Linked Global High Yield Gilts UK Europe North America Japan Property Other Alt Estimated yield** 2.7% Portfolio expense estimate** 0.7% 28.7% 54.0% Bonds Equities Property/Alt 62.9% Passive OEIC / Unit Trust Closed Ended 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Defensive Benchmark Note: Investors should note that this discretionary strategy is actively managed with a view to ensuring volatility remains consistent with the risk level. The asset allocation is likely to change in order to offer exposure to favoured asset classes and regions in line with Smith & Williamson s strategic views, and with the risk levels associated with the portfolio s objective. As a result the current mix of defensive and growth investments within the portfolio will change and therefore differ significantly over time. *Source: Smith & Williamson Investment Management as at Benchmarks Update as at Jan Benchmark: Smith & Williamson Multi-Asset Composite Benchmark. **Estimated yield and Portfolio expense estimate (%) as at Pie chart data as at

8 Defensive Income Portfolio Profile The strategy aims to deliver defensive total returns with an emphasis on also offering higher than average income. The portfolio may invest between 35% and 60% in global stock market investments subject to market conditions with the remainder in defensive asset classes. Asset breakdown 10.0% 1.0% 42.7% Product mix 19.5% 1.0% 11.5% S&W 4 - Defensive Income portfolio profile* Asset Class Portfolio (%) Benchmark (%) Active (%) Cash UK Bonds International Bonds Index Linked Global High Yield Gilts UK Europe North America Japan Pacific Property Other Alt Estimated yield** 3.0% Portfolio expense estimate** 0.8% 46.3% Bonds Equities Property/Alt 68.0% Passive OEIC / Unit Trust Closed Ended 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Defensive Income Benchmark Note: Investors should note that this discretionary strategy is actively managed with a view to ensuring volatility remains consistent with the risk level. The asset allocation is likely to change in order to offer exposure to favoured asset classes and regions in line with Smith & Williamson s strategic views, and with the risk levels associated with the portfolio s objective. As a result the current mix of defensive and growth investments within the portfolio will change and therefore differ significantly over time. *Source: Smith & Williamson Investment Management as at Benchmarks Update as at Jan Benchmark: Smith & Williamson Multi-Asset Composite Benchmark. **Estimated yield and Portfolio expense estimate (%) as at Pie chart data as at

9 Balanced Income Portfolio Profile The strategy aims to deliver balanced returns through a combination of investment income and capital growth. The portfolio is diversified across major asset classes and may invest between 55% and 70% in global stock market investments subject to market conditions. Asset breakdown 8.4% 0.4% 29.3% Product mix 18.2% 0.4% 13.3% S&W 5 Balanced Income portfolio profile* Asset Class Portfolio (%) Benchmark (%) Active (%) Cash UK Bonds International Bonds Index Linked Global High Yield Gilts UK Europe North America Japan Pacific Emerging Markets Property Other Alt Estimated yield** 2.7% Portfolio expense estimate** 0.8% 61.9% Bonds Equities Property/Alt 68.1% Passive OEIC / Unit Trust Closed Ended 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Balanced Income Benchmark Note: Investors should note that this discretionary strategy is actively managed with a view to ensuring volatility remains consistent with the risk level. The asset allocation is likely to change in order to offer exposure to favoured asset classes and regions in line with Smith & Williamson s strategic views, and with the risk levels associated with the portfolio s objective. As a result the current mix of defensive and growth investments within the portfolio will change and therefore differ significantly over time. *Source: Smith & Williamson Investment Management as at Benchmarks Update as at Jan Benchmark: Smith & Williamson Multi-Asset Composite Benchmark. **Estimated yield and Portfolio expense estimate (%) as at Pie chart data as at

10 Balanced Growth Portfolio Profile The strategy aims to deliver balanced growth through investing actively across defensive and riskier asset classes. The portfolio is biased towards global stock market investments and may invest between 65% and 85% in equities with the remainder diversified across defensive asset classes. Asset breakdown 5.8% 0.1% 19.3% Product mix 0.1% 13.1% 21.6% S&W 6 Balanced Growth portfolio profile* Asset Class Portfolio (%) Benchmark (%) Active (%) Cash UK Bonds International Bonds Global High Yield UK Europe North America Japan Pacific Emerging Markets Property Other Alt Estimated yield** 2.2% Portfolio expense estimate** 0.8% 74.8% Bonds Equities Property/Alt 65.1% Passive OEIC / Unit Trust Closed Ended 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Balanced Growth Benchmark Note: Investors should note that this discretionary strategy is actively managed with a view to ensuring volatility remains consistent with the risk level. The asset allocation is likely to change in order to offer exposure to favoured asset classes and regions in line with Smith & Williamson s strategic views, and with the risk levels associated with the portfolio s objective. As a result the current mix of defensive and growth investments within the portfolio will change and therefore differ significantly over time. *Source: Smith & Williamson Investment Management as at Benchmarks Update as at Jan Benchmark: Smith & Williamson Multi-Asset Composite Benchmark. **Estimated yield and Portfolio expense estimate (%) as at Pie chart data as at

11 Growth Portfolio Profile The strategy aims to deliver long-term growth by investing predominantly in stock markets across a wide range of geographic regions. The portfolio will always retain an emphasis on developed markets, and in particular investments in UK company shares. The portfolio will normally be more than 90% invested in stock markets but may be up to 15% in defensive asset classes. S&W 7 Growth portfolio profile* Asset Class Portfolio (%) Benchmark (%) Active (%) Cash UK Bonds International Bonds Global High Yield UK Europe North America Japan Pacific Emerging Markets Property Other Alt Estimated yield** 1.8% Portfolio expense estimate** 0.9% Asset breakdown 5.1% 0.2% 6.1% 88.6% Bonds Equities Property/Alt 28.7% Product mix 0.2% 12.9% 58.2% Passive OEIC / Unit Trust Closed Ended 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Growth Benchmark Note: Investors should note that this discretionary strategy is actively managed with a view to ensuring volatility remains consistent with the risk level. The asset allocation is likely to change in order to offer exposure to favoured asset classes and regions in line with Smith & Williamson s strategic views, and with the risk levels associated with the portfolio s objective. As a result the current mix of defensive and growth investments within the portfolio will change and therefore differ significantly over time. *Source: Smith & Williamson Investment Management as at Benchmarks Update as at Jan Benchmark: Smith & Williamson Multi-Asset Composite Benchmark. **Estimated yield and Portfolio expense estimate (%) as at Pie chart data as at

12 Dynamic Growth Portfolio Profile The strategy aims to deliver long-term growth by investing actively in stock markets across a wide range of geographic regions. The portfolio will usually retain a strong emphasis on developing markets with the flexibility to be as much as 50% invested in Asia and Emerging markets, subject to market conditions. The portfolio will usually be fully invested in stock markets. Asset breakdown 3.2% 0.3% 3.1% 31.5% Product mix 0.3% 8.0% S&W 8 Dynamic Growth portfolio profile* Asset Class Portfolio (%) Benchmark (%) Active (%) Cash Global High Yield UK Europe North America Japan Pacific Emerging Markets Property Estimated yield** 1.7% Portfolio expense estimate** 1.0% 93.5% Bonds Equities Property/Alt 60.2% Passive OEIC / Unit Trust Closed Ended 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep Dynamic Growth Benchmark Note: Investors should note that this discretionary strategy is actively managed with a view to ensuring volatility remains consistent with the risk level. The asset allocation is likely to change in order to offer exposure to favoured asset classes and regions in line with Smith & Williamson s strategic views, and with the risk levels associated with the portfolio s objective. As a result the current mix of defensive and growth investments within the portfolio will change and therefore differ significantly over time. *Source: Smith & Williamson Investment Management as at Benchmarks Update as at Jan Benchmark: Smith & Williamson Multi-Asset Composite Benchmark. **Estimated yield and Portfolio expense estimate (%) as at Pie chart data as at

13 S&W Range activity highlights Past 12 Months Name Reasons for trade Rationale Driver Jan 16 Sold Malborough Special Situations Reducing mid & small cap shares, in favour of larger companies on sterlings falls Jan 16 Sold Vanguard FTSE All Share Reducing mid & small cap shares, in favour of larger companies on sterlings falls Jan 16 Bought HSBC FTSE 100 Index Increasing large company shares following falls in sterling Jan 16 Sold Polar Capital Japan (Hedged) Disposal following weak performance, and reduction in Japanese exposure overall Switch Jan 16 Bought JP Morgan Japan (Hedged) Introducing reduced exposure to favoured Japanese manager style Mar 16 Bought AXA US Short Duration High Yield Increasing exposure to high yield bonds offering higher yields following price falls Allocation Macro Mar 16 Reduced Invesco UK Strategic Reducing UK stock market sensitivity using long/short UK manager Switch Mar 16 Bought Henderson UK Absolute Return Re-introducing long/short manager reducing stock market sensitivity style Jun 16 Sold Vanguard Long Duration Gilt Selling out of long duration gilts as now riskier at lower yields Allocation Macro Jun 16 Bought Royal London Short Duration Gilt Moving shorter duration in gilt allocation as protection from long end has reduced Allocation Macro Jun 16 Sold Kames High Yield Reducing high yield due to its higher correlation to equities Allocation Valuation Jun 16 Bought Royal London Corporate Bond Switching into investment grade at expense of high yield Allocation Valuation Jul- 16 Sold FP Argonaut European Alpha Reducing exposure and switching into hedged class due to currency concerns Jul- 16 Bought FP Argonaut European Alpha (Hedged) Adopting hedged exposure to European equities Switch style Allocation Jul- 16 Sold Liontrust Macro UK Growth Reducing exposure to manager following period of poor performance Switch Jul- 16 Bought Artemis UK Select Increasing exposure to growth themes through proven manager at new house Style Sep- 16 Reduced AXA US Short Duration High Yield Trimming exposure to high yield following good performance Valuation Macro Sep- 16 Increased Hermes Global Emerging Markets Increasing Emerging Market weighting towards benchmark level Allocation Macro Dec- 16 Sold Fidelity Enhance income Switching to manager with historically lower beta Switch Dec- 16 Bought RWC Enhanced Income Introducing a manager with historically lower beta Style Dec- 16 Reduced Vanguard US Equity Index Profit taking from US allocation following strong performance Allocation Valuation Macro Manager Macro Macro Manager Manager Note: The above is representative of transactions widely executed across the S&W range and should not be construed as comprehensive of all transactions in all models. Individual holdings changes in specific S&W strategies may therefore not be detailed. Those shown will be those which have been applied across more than one of the S&W strategies and seek to capture the direction of travel of asset allocation of the S&W range over the period shown. Source: as at

14 Stock stories Royal London Corporate Bond Jonathan Platt, Head of Fixed Income at Royal London Asset Management, has been responsible for managing this UK corporate bond fund since inception in It is a differentiated proposition to its peers given that approximately 40% of its holdings are credits which are typically less well covered by analysts owing to their not having credit ratings or not being included in the benchmark. Often, these are secured against physical assets. These characteristics tend to offer more attractive return characteristics than the more widely-held names. RWC Enhanced Income Artemis UK Select Schroder Asian Total Return Investment Company ishares $ Corporate Bond The key differentiator of the RWC team s approach is their strong value and absolute return focus which aims to protect the real value of clients capital whilst also delivering a constant annual yield of 6%. The fund s yield enhancement strategy operates through a combination of conventional dividend income and premium income earned from selling upside exposure to stocks for which they judge the near-term share price prospects are limited. This approach offers them the flexibility to hold more tactical cash than is conventional in income portfolios when valuations are full, and has historically enabled them to deliver sustainably high income with much lower volatility than the index. This open-ended fund has been managed by Ed Legget since January 2016 although he has a strong track record extending back to his days at his previous employer, Standard Life. He runs a concentrated multi-cap 'best ideas' UK equity portfolio targeting long-term capital growth. His process tends to marry a macro and sector thematic overlay to genuine bottomup analysis and stockpicking. His approach has tended to result in a relatively high beta in relation to the broader UK market due to the high active share within the portfolio. This is run by the high quality management team of Robin Parbrook and Lee King Fuei. They are focused on absolute returns and take an approach which is unconstrained by stock, sector and geography. They pick the best stocks they can find and then hedge out exposure to any underlying market that they believe is expensive. Further market protection is gained by a final hedging overlay should they believe there are shorter-term risks to Asian markets in general. The long term performance is excellent and the managers have historically protected on the downside during periods of market volatility. This Exchange Traded Fund offers diversified exposure to investment grade corporate bonds denominated in Dollars. It aims to track the performance of the Markit iboxx USD Liquid Investment Grade Index which itself measures the performance of the most liquid US Dollar denominated, fixed rate, investment grade corporate bonds. There is a cap on each individual issuer of 3% meaning the portfolio will be well diversified at all times. The Fund will not take any exposure to currencies other than the US Dollar. 14

15 Appendix

16 MPS Range characteristics 3 Defensive 4 Defensive Income 5 Balanced Income 6 Balanced Growth 7 Growth 8 Dynamic Growth To preserve capital in inflation adjusted terms through investing up to 85% in defensive assets such as government bonds, corporate bonds and property. Up to 35% of the portfolio may be invested in global stock market investments subject to prevailing market conditions To deliver defensive total returns with an emphasis on also offering higher than average income. The portfolio may invest between 35% and 60% in global stock market investments subject to market conditions with the remainder in defensive asset classes. To deliver balanced returns through a combination of investment income and capital growth. The portfolio is diversified across major asset classes and may invest between 55% and 70% in global stock market investments subject to market conditions. To deliver balanced growth through investing actively across defensive and riskier asset classes. The portfolio is biased towards global stock market investments and may invest between 65% and 85% in equities with the remainder diversified across defensive asset classes. To deliver long-term growth by investing predominantly in stock markets across a wide range of geographic regions. The portfolio has an emphasis on developed markets, and in particular investments in UK company shares. The portfolio may be up to 15% in defensive asset classes. To deliver long-term growth by investing actively in stock markets across a wide range of geographic regions. The portfolio will usually retain a strong emphasis on developing markets with the flexibility to be as much as 50% invested in Asia and Emerging markets. The portfolio will usually be fully invested in stock markets. DT allocation equity weight DT long-term volatility estimate 1 Multi-Asset Composite volatility (since launch) 3 S&W volatility (since launch) (%) 2, 3 Multi-Asset Composite volatility (1 Year) 3 S&W portfolio volatility (1 year) 3 Underlying portfolio yield estimate Novia portfolio expense estimate (%) Portfolio security count Distribution Technology; Q Capital Markets Assumption Update 2 Launch date as at (unaudited), Bloomberg and Morningstar as at All figures total return. 4 Source: Novia as at Launch date

17 Contact us Mickey Morrissey Partner, Head of Retails Sales t: e: Mickey joined Smith & Williamson in December 2012 as Head of UK IFA Sales and was appointed Head of Distribution in July He is responsible for growing intermediated sales into the DFM, Managed Portfolio Service and MultiManager business lines. Previously Mickey was Head of Distribution at Liontrust Asset Management for ten years and prior to that worked at Merrill Lynch Investment Managers for 12 years. Julian Polnik DFM Business Development t: e: Julian joined Smith and Williamson Investment Management in November 2011 as Head of Broker Desk. Julian has a BA Honours degree in Politics and Social Psychology from Loughborough University and a Diploma in Management Studies from the University of Westminster. He is a Chartered Fellow of the Chartered Institute for Securities and Investment. Lucy Mitchell Associate Director t: e: lucy.mitchell@smith.williamson.co.uk Lucy joined Smith & Williamson in April 2015 as Associate Director primarily to develop further the Managed Portfolio Service via platforms as well as the Bespoke DFM offering for the intermediary market. Lucy graduated from the University of Birmingham with a BSc in Economics and Political Science. She has also completed the IMC and Investment Advice Diploma (IAD). 17

18 Disclaimer The value of investments can go down as well as up and investors may not receive back the original amount invested. Past performance is not a guide to future performance. There can be no assurance that any portfolio will achieve its investment objective, the target return or any volatility target. Any target return or volatility target shown is neither guaranteed nor binding on the Manager. When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable. Investing in alternative assets involves higher risks than traditional investments and may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Please note that bond funds may not behave like direct investments in the underlying bonds themselves. By investing in bond funds the certainty of a fixed income for a fixed period with a fixed return of capital are lost. These profiles are tailored to the output of a Distribution Technology (DT) risk profiling process which is complex and not for use without assistance from a financial adviser. Performance outcomes will depend on the rebalancing and timing of entry and exit to the strategy on the platform. This document contains information believed to be reliable but no guarantee, warranty or representation, express or implied, is given as to their accuracy or completeness. This is neither an offer nor a solicitation to buy or sell any investment referred to in this document. documents may contain future statements which are based on our current opinions, expectations and projections. does not undertake any obligation to update or revise any future statements. Actual results could differ materially from those anticipated. Appropriate advice should be taken before entering into transactions. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. In relation to these Smith & Williamson s portfolio profiles, is unable to assess or provide advice on the suitability of this profile for individual circumstances. No consideration has been given to the suitability of any investment profile for the particular needs of any recipient. SWIM will not be responsible to any other person for providing the protections afforded to retail investors or for advising on any investment, as a result of using this information. Issued by which is a trading name of LLP. Authorised and regulated by the Financial Conduct Authority (registration number is ). Ref: 13717db 18