Brooks Macdonald | MPS and MAF investor update – September 2018


Watch Jonathan Webster-Smith, Head of Multi-Asset Team, discuss recent portfolio and fund performance and key factors driving the current investment climate.



How did the portfolios perform in September?


September returns were fairly muted – that is to say, we had some very small positive or negative movements in client values. When we look at that against benchmarks, pleasingly, the vast majority of portfolios were ahead of their benchmarks, albeit marginally. There was one that detracted by one basis point – that was Low to Medium Risk (passive)- so, generally speaking, we’re please with how portfolios have held up in September.

Could you touch on some of the key events that took place in September?


If we look at the main positive drivers for the month, it was really led by Japan and President Abe getting re-elected. Should he remain the term, he will be the longest-serving Japanese Prime Minister, and that’s really a continuation of politics that is going on, and the market is really behind that. We saw quite a strong bounce in Japanese equities over the month. We’ve also had a lot of Brexit talk over the month, and we seen actually some pretty strong bounce-backs, particularly from UK equity large-caps, which were detractors in the previous month, so part of that would just be a bounce-back on perhaps some more positive Brexit news. The main detractors, again, we’ve spoked about emerging markets before – they’ve continued to detract around Trump and trade wars, so whilst on balance we’ve gained from developed-market equities, other asset classes have detracted.


It was good to see that portfolios performed well on a relative basis against their Investment Association sectors and in some cases produced positive returns where the sectors received negative returns. How did you achieve this outperformance?


I guess it comes down to diversification, which has remained and will always remain really important at these more difficult times in the market. The second point is, despite it being late-cycle, we haven’t shied away from the equity market, and it is the equity market that’s been driving these returns, as again for this month. By any metric, if you look at equities against bonds, the equity market has definitely been the right place to be. And thirdly, currency has clearly been a driver and I think will continue to be, as there’s a lot of politics in the headlines at the moment.


On a slightly different point, Italian bond yields have spiked again – has this changed your view on European equities at all?


It’s certainly had an adverse impact on European valuations and the market performance, but in short, “no” is the answer to that. The reality is, in a slightly flippant answer, is that we have seen an incredible amount of political change and turmoil in Italy over the last 5 years. The more serious, underlying tone is what is being proposed: a 2.4% budget deficit against the European treaty rule of 2%. Essentially, we’re heading into a game of political “chicken”: will the European Union be strong enough to tackle Italy? And Italy is probably banking on, “is the European Union leadership about to change and will it be too weak to do it?” The devil is in the detail and we haven’t got that, so for the time being, we’re watching it, but we’re not so worried at this stage. If the detail comes out, then clearly Italy is a big market, far different to Greece, and therefore we will pay significant attention to it.

And finally, there’s been a lot of talk about being in the late stages of the current economic cycle. What sort of indicators are you keeping an eye on that could indicate that the conditions are becoming less favourable for equities, going forward?

The key drivers of equity returns remain underlying corporate earnings and return on capital. If we start to see a deterioration in either of those metrics, we clearly have to look again at our overweight positioning. Shocks to the market, such as interest rates going up faster than the market thinks, that’s going to have an adverse impact, and the two big economies of the world are America and China, so if we see material changes in the consumer or in the GDP of those areas, that would force us to re-think some of our positioning. But at this time, we don’t have these concerns.


This information is intended for professional advisers only and should not be relied upon by any persons who do not have professional experience in matters relating to investments. The value of your investments and the income from them may go down as well as up. You may get back less than you invested. Past performance is not a reliable indicator of future results.


If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset.

The opinions expressed in the video of which this document is a transcript are not necessarily the views held throughout Brooks Macdonald. The information contained in this video is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.


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