Fund Management Diary Meeting held on 18 th December 2018 Macroeconomic Update The US equity market is an area of concern for us at the moment, the S&P 500 and the NASDAQ are currently experiencing sharp corrections. After recent market falls the S&P 500 appeared to bounce slightly, but has since fallen again. On the other hand, the IA sector has recovered after October s market falls, and has demonstrated stronger performance than the IA America sector over the last few months. This lends some credence to our belief that China is better positioned to weather trade wars than the US. We feel Trump will be under increasing pressure to resolve the situation, the stimulus from the US tax cuts will fade, and rising rates will start to weigh on the economy, making an economic win desirable. We expect the US economy to slow in 2019, but are still optimistic about the rest of the world. The contributing factors to a slowdown are likely to be the domestic factors mentioned above, which will limit the impact on the rest of the world. Only America s largest trading partners are likely to be impacted significantly, and they in turn have a fairly small impact on global GDP growth. While previous US downturns have been felt globally, the key difference this time appears to be the disconnect between the US interest rate and business cycles, compared to those of the rest of the world. Historically these cycles have been more synchronised than they are at present. Last week Theresa May survived a vote of no confidence, which challenged her as leader of the Conservative party. It is still our belief that her deal, or something very similar to it will be agreed. While there will no doubt be a large amount of political posturing between now and the deal being agreed, logic suggests that Remainers would prefer a deal over a hard Brexit, while Brexiteers would prefer a deal than the possibility of a second referendum, and the chance of a remain vote. This should give both sides some common ground to work towards. Strategy We have decreased our exposure to the US in International, and have reallocated to the UK and instead. Our underweight exposure to the US relative to our peer group has been beneficial to us over the short term, and is a trend we expect to see continue next year. We continue to favour UK equities as the underlying market appears healthy and pays an attractive yield. The political risk weighing on the market at present created a buying opportunity that we have taken advantage of. Thank you for your support and continued interest in the Margetts diary over 2018. Our first diary in 2019 will follow our meeting on January 8 th.
Fund Comments The below charts show the current positions of the fund, the tactical (short term) targets, and the strategic (long term) targets of the fund. We aim to keep the current positions in line with the tactical targets from week to week. The differences between the tactical and strategic targets reflect the views and convictions of the Margetts Investment Committee. Providence 6 5 4 3 2 1 Bonds Cash UK Europe ex UK the tactical targets set by the committee. No changes are being made to the tactical targets this week, while UK equities were topped up from cash to bring the cash and UK equity allocations closer to their tactical targets. Fund Selection: The BlackRock Corporate Bond fund and the Royal London Index Linked fund have been amongst the best performing bond funds in the portfolio over 12 weeks. The domestically focused Premier Income fund has lagged behind other UK Equity Income funds in Providence, as Brexit uncertainty continues to weigh on the UK. The Man GLG UK Income fund has outperformed the IA UK Equity Income sector over recent months.
Select 5 45.0% 4 35.0% 3 25.0% 2 15.0% 1 5.0% Bonds Cash UK Europe ex UK the tactical targets set by the committee. No changes are being made to the tactical targets this week. We have reduced the current allocation to and Market equities, and topped up the UK Equity allocation with the proceeds. Fund Selection: In absolute terms, the Janus Henderson Opportunities fund has been the strongest underlying holding in Select over 12 weeks. The Jupiter UK Special Situations fund has performed strongly relative to its sector, IA UK All Companies. The BMO Select European Equity fund (previously F&C European Growth & Income) has been somewhat disappointing over recent weeks, and the team are monitoring this fund closely.
International 6 5 4 3 2 1 Bonds Cash UK Europe ex UK the tactical targets set by the committee. The equity target has been reduced by 2%, and corresponding sell deals placed. We have invested the proceeds into UK and equities, increasing their tactical targets by 1.75% and 0.25% accordingly. As discussed above, we believe that the US economy will slow in 2019, and the UK and Asia offer more attractive investment opportunities. Fund Selection: The L&G Asian Income fund and the unhedged version of the Schroder Tokyo fund have performed relatively well over recent weeks. The Baillie Gifford Pacific strategy has been somewhat weaker, due to its bias towards Chinese Technology firms, which have suffered over the past few months. Overall the team are happy with the underlying fund selection in International and no changes are being considered at present.
Venture 4 35.0% 3 25.0% 2 15.0% 1 5.0% Bonds Cash UK Europe ex UK the tactical targets set by the committee. The target has been increased by 0.5%, and the Europe ex UK target decreased by 0.5%, to bring the targets and allocations in line. We favour over Europe, so we moved the targets rather than selling out of to top up our European holdings. A small sell was made from our allocation, and the proceeds allocated to cash, to keep these allocations in line with their targets. Fund Selection: The Schroder Institutional Pacific fund has lagged the IA sector over 12 weeks, however its longer term performance is strong. The JPM Income fund has been a strong performer over recent months, while the Stewart Investors Leaders fund continues to be the best underlying holding.
Important Information Please note that the contents are based on the author s opinion and are not intended as investment advice. This information is aimed at professional advisers and should not be relied upon by any other persons. Any research is for information only, does not constitute financial advice or necessarily reflect the views of the author and is subject to change. It remains the responsibility of the financial adviser to verify the accuracy of the information and assess whether the fund is suitable and appropriate for their customer. Past performance is not a reliable indicator of future performance. The value of investments and the income derived from them can fall as well as rise and investors may get back less than they invested. Important information about the funds can be found in the Supplementary Information Document and NURS-KII Document which are available on our website or on request. Issued by Margetts Fund Management Ltd Margetts Fund Management Limited is authorised and regulated by the Financial Conduct Authority For any information about the company or for a copy of the company's Terms of Business, please contact the company on 0121 236 2380 or at 1 Sovereign Court, Graham Street, Birmingham B1 3JR You can e-mail us at admin@margetts.com