CF HEARTWOOD GROWTH MULTI ASSET FUND QUARTERLY INVESTMENT REPORT AS AT 30 SEPTEMBER 2017

Transcription

1 CF HEARTWOOD GROWTH MULTI ASSET FUND AS AT 30 SEPTEMBER 2017 What s inside MARKET AND PORTFOLIO COMMENTARY 2 PORTFOLIO HOLDINGS 3 CF HEARTWOOD GROWTH MULTI ASSET FUND PERFORMANCE REVIEW 4 RISK AND DRAWDOWN SUMMARY 5 PORTFOLIO ACTIVITY 6 PERFORMANCE IN CONTEXT 7

2 MARKET AND PORTFOLIO COMMENTARY ECONOMIC AND MARKET REVIEW Despite heightening geopolitical tensions, a violent hurricane season in the US and a resurfacing of populist forces in Europe, global equity markets made solid gains in local currency. However, sterling s rebound moderated returns from overseas markets for UK investors. Risk appetite remained well supported by steady economic growth and central bank liquidity, as market volatility stayed low. Corporate earnings results in the US delivered double-digit gains as other regions also saw stronger profitability, including the emerging markets. Towards the end of the period and with interest rates moving higher, investors started to rotate out of growth stocks, particularly technology, and into global financials as well as more cyclical areas. Indeed, the moderate rise in developed sovereign bond yields masked a meaningful reassessment of interest rate expectations in September. Bank of England commentary indicated increasing concerns about the inflation outlook, as the US Federal Reserve signalled its intent to stay on a trajectory of policy normalisation, including initiating its programme of balance sheet reduction. Credit markets found support from solid corporate earnings results and goldilocks economic conditions, with spreads grinding tighter in US corporate credit and emerging market debt. Elsewhere, commodity prices strengthened across the complex, driven more by supply constraints than rising demand in the case of oil and industrial metals. UK commercial property also continued to deliver positive returns, despite ongoing Brexit uncertainty. ECONOMIC AND MARKET OUTLOOK Global economic conditions remain supportive to financial markets, evidenced by rising capital expenditure and elevated levels of optimism reported in business surveys. Consumption continues to be underpinned by falling unemployment rates across developed economies. Inflation pressures remain muted (outside of the UK) but we expect that cyclical forces will begin to exert themselves onto headline measures, reflecting the economic rebound seen over the past year, particularly in the US. Meanwhile, emerging market economies in aggregate are showing greater stability, with Brazil and Russia recovering from recessions; moderate to stable inflation trends across most countries; and a carefully managed rebalancing of China s economy. Notwithstanding this more supportive economic backdrop, we believe the shift towards tighter financial conditions will present more challenges for markets further out, which have to date remained too optimistic about the interest rate outlook. From our standpoint, central banks are intent on normalising monetary policies after years of emergency stimulus. For these reasons, we have been moderately reducing risk in portfolios and improving liquidity, so that they are well positioned to withstand any potential market dislocation. We have also tilted portfolios towards the more value-orientated parts of the market, which we believe are better positioned to withstand higher interest rates. PERFORMANCE REVIEW The overall fund return was positive, with equities driving the positive returns. Our equity allocation benefited from strong performance out of our European and Japanese exposures, with Blackrock European Dynamic (up 5.1%) and Daiwa Japan Small Cap (up 10.8%) performing particularly well. PORTFOLIO POSITIONING Based on our view that there is likely to be a shift towards tighter financial conditions, we modestly reduced our equity allocation, mainly through European equities. We are currently underweight in UK equities; broadly neutral in US equities; and maintain overweight positions in European, Japanese and EM equities. In fixed income, we continue to hold select exposures to emerging market debt (sovereign and corporate). For portfolio diversification reasons, we maintained exposure to gold and added to our hedge fund allocation. Elsewhere, a weak domestic UK outlook together with Brexit uncertainty keeps us underweight in UK commercial property. By Growth Fund Manager Michael Stanes Investment Director Past performance is not a reliable indicator of future performance. This report does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned. The value of investments may fall as well as rise. Meanwhile, bond yields nudged higher over the quarter, leaving the BoA Merrill Lynch Sterling Broad Bond Index (down 0.4%) in negative territory. Pleasingly, our emerging market debt positions drove the portfolio s outperformance within this asset class. UK commercial property produced positive returns last quarter, although our property holding, Land Securities, detracted from performance. Elsewhere, the portfolio s hedge fund exposure produced positive returns, driven by our macro manager, RV Capital Asia Opportunity, while our precious metal exposure fell with the market. All returns in sterling. 2

3 PORTFOLIO HOLDINGS BREAKDOWN OF ALL HOLDINGS WITHIN THE CF HEARTWOOD GROWTH MULTI ASSET FUND Portfolio Holding (%) 30 Sep 17 Portfolio Holding (%) 30 Jun 17 Bonds Emerging Markets Ashmore Em Hy Corporate Debt Hedged Ashmore Emerging Markets Soverign Debt Fund Equity UK Aberforth UK Smaller Cos Fd Acc db X Trackers FTSE 100 UCITS ETF (Dr) 1C Heronbridge (Jersey) UK Equity Fund B ishares Core FTSE 100 UCITS ETF Acc Majedie UK Equity X Acc Miton UK Micro Cap Trust Vanguard Dublin FTSE 100 ETF North America ishares Micro Cap ETF ishares Oil & Gas Exploration & Prod UCITS ETF ishares VII Core S&P 500 UCITS ETF Lazard US Concentrated Acc Source Nasdaq Biotech UCITS ETF Source US Industrials ETF Vanguard Index Fds S&P 500 ETF Europe Ex-UK Blackrock European Dynamic Fd Acc Davy Opps Trust Maga Micro Cap Fund Eur Sg Euro STOXX 50 16/3/2018 C Vanguard FTSE Developed Europe Ex UK UCITS ETF Japan Dsbi Japan Equity Small Cap Absolute Value Legg Mason Inv Fds Japan Equity X Acc Man GLG Japan Core Alpha Prof Acc Emerging Markets Blackrock Asian Growth Leaders Blackrock Emerging Market Equity Strategies Fd Z Portfolio Holding (%) 30 Sep 17 Portfolio Holding (%) 30 Jun 17 Equity continued... Hermes Global Emerging Markets Fund ishares MSCI Em UCITS Dist (UK Listed) Magna New Frontiers - Fd-G GBP Acc Mirae Asset India Sector Leader Eqty R Rdr Global Bb Healthcare Trust Plc ishares Edge MSCI World Value Factor ETF UCITS T Rowe Price Global Technology- Q Acc (GBP) Property UK Land Securities B Shares Land Securities Gp Ord Land Securities Plc Ord Commodities Precious Metals ETFS Physical Gold GBP Source Physical Silver P-Etc Hedge Funds Global Macro Rv Capital Asia Opportunity UCITS Fund GBP Equity Long-Short Majedie Tortoise Diversified Fund-Of-Funds Heartwood Alternatives Fund A Shares Liquidity Funds Liquidity Funds - GBP Fidelity Instl Liquidity Fund GBP A Acc GS Sterling Liq Reserves Fd Acc JP Morgan Sterling Liq Fd C Acc Cash Cash GBP Total Source: FactSet and Heartwood. The information shown above does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned we will select or recommend those investments that we consider appropriate for inclusion in each portfolio.

4 CF HEARTWOOD GROWTH MULTI ASSET FUND PERFORMANCE REVIEW Performance Review INVESTMENT OBJECTIVE The CF Heartwood Growth Multi Asset Fund will aim to deliver capital growth from a diversified equity oriented portfolio. There is no guarantee that a positive return will be delivered. INVESTMENT PERFORMANCE INVESTMENT STYLE Investing across a wide range of asset classes globally is the best way to build a diversified portfolio that aims to achieve a specific return for a given risk appetite. We use strategic asset allocation to find the right long-term mix of assets to achieve a target return and tactical asset allocation to adjust the portfolio to suit shorter term market conditions. FUND DETAILS Fund manager Michael Stanes Launch date 1 December 2009 Fund size IA sector Legal structure Historic yield (net) Pay dates XD dates Types of shares ISA/SIPP Fund currency Fund charges (annualised) Fund codes (SEDOL) 203.5m Unclassified Non-UCITS Retail Scheme 0.52% 31 Mar 31 Jan Accumulation Yes Sterling Heartwood management charge: 1.25% Third party fees and charges: 0.56% Ongoing charges figure: 1.81% B accumulation*: B4KK1C6 * Charges / SEDOL variable by share class Trailing performance to 30 Sep 2017 Fund UK Equity UK Bonds 1 Mth -1.2% -0.8% -2.7% 3 Mths 1.1% 1.8% -0.4% 6 Mths 2.5% 2.7% -1.8% 1 Yr 10.0% 11.1% -3.8% 3 Yrs 22.2% 23.8% 18.3% 5 Yrs 50.6% 53.3% 21.5% Since Inc 72.3% 83.4% 53.4% YTD 7.3% 6.6% -0.1% Discrete annual performance UK Equity represented by MSCI United Kingdom, UK Bonds represented by BoA Merrill Lynch UK Gilts. Past performance is not a reliable indicator of future performance. ASSET ALLOCATION SUMMARY Current Asset Allocation Fund UK Equity UK Bonds 12 Mths to 30-Sep % 11.1% -3.8% 12 Mths to 30-Sep % 18.5% 13.2% 12 Mths to 30-Sep % -5.9% 8.6% 12 Mths to 30-Sep % 6.0% 5.9% 12 Mths to 30-Sep % 16.7% -3.1% Cash Bonds Property Hedge Funds Commodities Equity Private Equity Cash Bonds Property Hedge Funds Commodities Equity Private Equity Tactical Allocation versus Central Position Underweight Overweght Source: For all charts the source is FactSet and Heartwood 4

5 RISK AND DRAWDOWN SUMMARY Fund 30 Sep 17 IA Growth Peer Group UK Equity UK Government Bonds Downside risk Maximum drawdown -17.3% -14.0% -20.5% -9.2% Worst Month -8.5% -7.6% -6.6% -4.5% Risk versus Return Annualised volatility 9.6% 9.2% 11.6% 6.7% Sharpe ratio % Positive Months 62.4% 63.4% 59.1% 61.3% Best 12 Months 24.3% 21.8% 28.3% 19.5% Worst 12 Months -9.0% -8.7% -9.2% -4.6% Source: FactSet, MorningStar and Heartwood. Calculation Basis: Sterling, total return, net of ongoing charges figure. All the data in the table above is since the inception of the Fund. Past performance is not a reliable indicator of future performance. IA Growth Peer Group = Flexible Investment Sector. The IA Peer Groups are constructed by the Investment Association and categorise retail funds by their stated investment objectives. HISTORIC DRAWDOWN PROFILE Drawdown is the peak-to-trough decline in portfolio value (expressed as a percentage between peak and trough), from when the fall begins to a new peak being reached. It illustrates the potential losses a portfolio could suffer during periods of financial market stress. ASSET ALLOCATION BREAKDOWN Current Equity Exposure Current Bond Exposure 23.8% North America 23.5% United Kingdom 9.5% Europe ex-uk 9.0% Emerging Markets 7.9% Japan 0.8% Pacific ex-japan 4.7% Emerging Market Debt 0.0% Corporate High Yield 0.0% Corporate Investment Grade 0.0% Government Conventional 0.0% Government Index Linked 0.0% Non-GBP Government Source for charts: FactSet and Heartwood 5

6 PORTFOLIO ACTIVITY The bar charts below show details of the largest portfolio transactions in the CF Heartwood Growth Multi Asset Fund during the quarter. The m figures relate to the transactions in the CF Heartwood Growth Multi Asset Fund, not to transactions within your individual portfolio. A summary of the portfolio transactions within the CF Heartwood Growth Multi Asset Fund during the quarter to 30 September 2017: Given our expectation that we could be entering a more challenging period for financial markets, we have been looking to lock in profits as well as concentrate the portfolio in our highest conviction idea. With this in mind and as part of a risk reduction plan, we sold exposure to US industrials, where performance had disappointed, and marginally trimmed the overweight position in European equities. While our view remains positive on Europe, we believed it prudent to reduce some risk given how far the currency has appreciated year to date. We also looked to concentrate our UK equity risk in those managers where we have the highest conviction. In particular, we added to Majedie UK Equity Fund which has underperformed recently. In Japan, we cut exposure to Legg Mason Japan Equity after strong performance, reinvesting the proceeds into a value manager, Man GLG Japan Core Alpha Fund. Much like other global markets, larger company value stocks in Japan have been out of favour with investors since We believe that this area of the market now looks compelling on a range of valuation measures. Some of the cash raised from the above equity reduction was re-invested in alternatives for diversification. We introduced a position in Majedie Tortoise, an equity long/short strategy that seeks to provide positive absolute returns in all market conditions but with lower levels of volatility. As a tactical opportunity, we purchased a position in ishares Oil & Gas Exploration (SPOG). This instrument has underperformed the energy sector year-to-date despite oil price stability. Supply constraints should continue to support oil prices in the near term, although we are not expecting any meaningful appreciation from here. LARGEST PURCHASES DURING THE QUARTER ( M) Source NASDAQ Biotech ETF ishares Oil & Gas Exploration & Production UCITS... Majedie Tortoise Majedie UK Equity - X Acc Magna Frontier Market Fund LARGEST SALES DURING THE QUARTER ( M) Source US S&P Industrials ETF ishares MSCI Emerging Markets Blackrock European Dynamic - FD Acc Vanguard FTSE Developed Europe ex UK Legg Mason Japan Equity - X Acc The information shown above does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned we will select or recommend those investments that we consider appropriate for inclusion in each portfolio. For all charts the source is FactSet and Heartwood. 6

7 PERFORMANCE IN CONTEXT The CF Heartwood Growth Multi Asset Fund s performance over different periods is shown in the table below relative to various comparators and market indices, in order to facilitate comparisons. All figures are in sterling terms. CF Heartwood Growth Multi Asset Fund - B Acc Quarter to 30 Sep Mths to 30 Sep 2017 YTD 2016 Since Launch* 1.1% 2.5% 7.3% 11.1% 72.3% Comparators MSCI United Kingdom 1.8% 2.7% 6.6% 19.2% 83.4% MSCI World Index 1.6% 2.0% 7.3% 29.0% 159.7% BoA Merrill Lynch UK Gilts -0.4% -1.8% -0.1% 10.6% 53.4% 1 Month Libor 0.1% 0.1% 0.2% 0.4% 4.0% Bond Indices BoA Merrill Lynch UK Gilts -0.4% -1.8% -0.1% 10.6% 53.4% BoA Merrill Lynch UK Gilts, Inflation-Linked -0.8% -3.0% -1.2% 25.2% 89.9% BoA Merrill Lynch Sterling Corporate Master 0.2% 0.8% 2.9% 11.7% 76.2% Equity Indices MSCI United Kingdom 1.8% 2.7% 6.6% 19.2% 83.4% MSCI North America 1.3% 0.4% 5.2% 34.0% 216.0% MSCI Japan 0.8% 2.1% 5.6% 22.5% 109.9% MSCI Europe ex UK 3.6% 8.6% 16.6% 19.7% 100.9% MSCI Pacific ex JP 0.4% -1.8% 8.4% 28.8% 95.6% MSCI EM (Emerging Markets) 4.6% 7.1% 18.0% 33.1% 71.1% Hedge Funds DJ CS Long/Short Equity Hedge Fund Index 2.5% 5.4% 8.9% -3.5% 53.8% DJ CS Global Macro Hedge Fund Index 1.5% -0.6% -0.4% 3.5% 41.1% DJ CS Multi-Strategy Hedge Fund Index 1.3% 3.4% 6.1% 4.3% 73.3% Property IPD All Property Index, TR 1.6% 4.2% 6.5% 2.6% 109.5% Commodities S&P GCSI Index,TR 3.8% -5.5% -11.4% 32.8% -36.5% Inflation CPI (Consumer Price Index) 0.5% 1.3% 1.8% 1.6% 18.0% *Launch Date: 1 December 2009 Fund performance is sourced from FactSet, calculated from the net asset value provided by Capita Financial Managers Limited, the Fund s Authorised Corporate Director. Indices are sourced from FactSet. All charts show performance figures for income units and incorporate all underlying management and transaction charges within the Fund. Past performance is not a reliable indicator of future performance. 7

8 The bar charts show which of the holdings within the CF Heartwood Growth Multi Asset Fund had the best and worst performance this quarter. TOP 5 PERFORMERS (% CHANGE) Dsbi Japan Equity Small Cap Absolute Value Legg Mason Inv Fds Japan Equity X Acc Hermes Global Emerging Markets Fund ishares MSCI Em UCITS Dist (UK Listed) Ashmore Em Hy Corporate Debt Hedged BOTTOM 5 PERFORMERS (% CHANGE) Sg Euro STOXX 50 16/3/2018 C4000 Land Securities Plc Ord Davy Opps Trust Maga Micro Cap Fund Eur CAPITAL US DOLLARS Bb Healthcare Trust Plc The bar charts show which of the holdings within the CF Heartwood Growth Multi Asset Fund had the best and worst contribution to the Fund s overall performance this quarter. The following charts use basis points to display small numbers. 1% change = 100 basis points. TOP 5 CONTRIBUTORS (Basis Points) Dsbi Japan Equity Small Cap Absolute Value Blackrock European Dynamic Fd Acc Hermes Global Emerging Markets Fund Vanguard FTSE Developed Europe Ex UK UCITS ETF Aberforth UK Smaller Cos Fd Acc BOTTOM 5 CONTRIBUTORS (Basis Points) Land Securities Plc Ord Lazard US Concentrated Acc Davy Opps Trust Maga Micro Cap Fund Eur Bb Healthcare Trust Plc Blackrock Emerging Market Equity Strategies Fd Z Source for all charts and indices: FactSet and Heartwood. Fund performance analysis is calculated by FactSet, based on valuation data from Invantage, our internal accounting system. All charts show performance figures for income units. The information above does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned. Past performance is not a reliable indicator of future performance. 8

9 The table below shows the performance by geographical breakdown of the CF Heartwood Growth Multi Asset Fund s equity exposure. The bar graph shows each region s contribution to the Fund s total return over the period. The following charts use basis points to display small numbers. 1% change = 100 basis points. EQUITY PERFORMANCE AND CONTRIBUTION BY REGION DURING THE QUARTER TO 30 SEPTEMBER 2017 Performance (%) Contribution (Basis Points) Emerging Markets 1.5% 20.0 Europe Ex-UK 3.0% 30.2 Global 1.8% 13.4 Japan 5.1% 35.9 North America 1.3% 25.4 UK 2.0% 43.4 EQUITY CONTRIBUTION BY REGION (BASIS POINTS) Global UK North America Japan Europe Ex-UK Emerging Markets Source for all charts and indices: FactSet and Heartwood. Fund performance analysis is calculated by FactSet, based on valuation data from Invantage, our internal accounting system. All charts show performance figures for accumulation units and incorporate full dealing charges. Past performance is not a reliable indicator of future performance. GUIDE TO THIS REPORT ANNUALISED VOLATILITY A common statistical measure used to assess the risk levels of different investments. It is an annualised figure measuring the dispersion of monthly returns around the average monthly return of that security. If a portfolio has a high volatility, this suggests a greater variation of returns. ANNUAL MANAGEMENT CHARGE (AMC) A charge levied yearly for the management of the Fund. ASSET ALLOCATION SUMMARY The asset allocation charts show how a portfolio is currently invested in various asset classes at the time of the report, detailing the percentage invested in each. The bar chart illustrates the percentage deviation of our current positioning away from the central position. CENTRAL POSITION A central position is created for each of our strategies. Each is comprised of a number of asset classes and is designed to deliver an appropriate long term return for a given level of risk. This level of risk varies across the strategies. We use the central positions as a starting point for our investment decisions. The central positions do not constrain investment decisions. CURRENT BOND EXPOSURE This is a breakdown of the portfolio s allocation to different bond sub-sectors, shown as a percentage of the overall bond weighting. CURRENT EQUITY EXPOSURE This is a breakdown of the portfolio s allocation to equity by geographic region, shown as a percentage of the overall equity weighting. DRAWDOWN A measure of the downside risk of a portfolio. It is the percentage drop from any peak in a portfolio value to any bottom. It can be applied directly to the size of the portfolio giving an estimate of how much money you could lose at some intermediate point during the life of the investment strategy. HISTORIC YIELD The annual rate of return from distributions on an investment, expressed as a percentage of the money invested. INVESTMENT PERFORMANCE This chart shows the performance of the portfolio versus two asset class indices, equity (MSCI United Kingdom) and UK government bonds (BoA Merrill Lynch UK Govt Conventional Bonds). These two indices represent the two largest asset classes within the portfolio. The table shows the performance of the portfolio over discrete time periods. ONGOING CHARGES FIGURE (OCF) The OCF figure may vary from year to year. The ongoing charges are taken from the income of the fund. They exclude portfolio transactions costs, except in the case of an entry/exit charge paid by the fund when buying or selling units in another collective investment undertaking. 9

10 CONTACT INFORMATION IMPORTANT INFORMATION Registered head office: Heartwood Investment Management, No.1 Kingsway, London, WC2B 6AN. Tel: Registered in England, Number: heartwoodgroup.co.uk handelsbanken.co.uk This document is not investment research. Opinions expressed (whether in general or both on the performance of individual securities and in a wider economic context) represent the views of Heartwood Investment Management at the time of publication. They are subject to change and should not be interpreted as investment advice. The information provided in this document was captured on 30 September 2017 and therefore is not current. Should you require current information please contact Heartwood Investment Management. Directors or employees of Heartwood may have a personal position in any of the investments mentioned in this publication. This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities. Nothing in it constitutes advice to undertake a transaction, and professional advice should be taken before investing. All performance figures are net of all fees and are as of the publication date of the document. The data source is FactSet and Heartwood. Past performance should not be seen as a reliable indicator of future performance. The value of any investment and the income from it is not guaranteed and can fall as well as rise, so that you may not realise the amount originally invested. Where an investment is denominated in a currency other than sterling, changes in exchange rates between currencies may cause investment values or income to rise or fall. The portfolios may invest in funds which have limited liquidity, or which individually have a relatively high risk profile and/or be unregulated by the Financial Conduct Authority (FCA). This document has been issued by Heartwood Investment Management. Heartwood Investment Management is a division of Heartwood Wealth Management Ltd (Heartwood), which is authorised and regulated by the FCA in the conduct of investment business, and is a wholly owned subsidiary of Svenska Handelsbanken AB (publ). For Heartwood Multi Asset Funds, the Authorised Corporate Director is Capita Financial Managers Limited and the Registrar is Capita Financial Administrators Limited, both of which are authorised and regulated by the FCA. The Investment Manager is Heartwood. Before investing you should read the Key Investor Information Document ( KIID ) as it contains important information regarding the fund including charges, specific risk warnings and will form the basis of any investment decision. The Prospectus, Key Investor Information Document, current prices and latest report and accounts are available from Heartwood, or Capita Financial Managers Limited at 2 The Boulevard, City West One Office Park, Geldard Road Leeds LS12 6NT or by telephone on The share class of the fund was launched on 1 December 2009 so performance figures do not exist before that time. PUBLISHED BY