Investments Update: Q1 2019

Market Overview

The end of 2018 provided a rollercoaster for investors with the global stock market crashing by over 15% from its August high, before then starting to rebound at the end of December. The final month of 2018 was the worst December return on the US market since the great depression and this naturally led to many fearing that the ‘bull run’ in equity markets of the last decade was coming to an end.

Since the turn of the year, however, we have seen a more accommodative stance from the US Federal Reserve, which has lessened fears of further interest rate hikes. This, combined with an easing of tensions in the US/China trade wars, has led to investor confidence returning and we have seen strong equity market returns in the first quarter of 2019. While some of the headwinds from the end of 2018 seem to have receded we are still very conscious of other potential pitfalls that are still out there.

The ‘Brexit can’ has been well and truly kicked down the road, which does not help with portfolio management, given the lack of certainty that this brings. European politics also continues to concern us with rising tensions between some of the member states and the EU. Germany’s economy also appears to be somewhat in decline, with issues around car production and export sales hampering them.  Asia also looks quite subdued, with the Chinese cutting their 2019 growth forecast to between 6 and 6.5%, citing the trade frictions with America as the main reason. The Chinese are however showing signs that they are pushing to increase this domestic growth, through easing banks’ capital constraints and US$800 billion of corporation tax and fee reductions. 

Over in the US the fundamental drivers of growth look sound, following the political shenanigans at the end of 2018 that saw the government in partial shutdown for the longest period in their history. Wages are growing now that the labour market is fully employed and the benefits of the Trump tax cuts are being felt, which is leading to more disposable income for many people. All of this should lead to continued US expansion, but whether this filters through to continued stock market rises will have to be seen. 

One thing we can be sure of is that the increased volatility of 2018 is likely to continue through the rest of 2019. The initial rebound in the markets in January was very welcome, but since then we have seen a lot of sideways volatility, which we expect to continue. Currency is having a large impact on the UK stock market, and the continued lack of clarity over Brexit has continued to see this fluctuate hugely. Until a resolution is clear this will continue to happen, although the removal of ‘no deal’ as an option should help quell this slightly.  

John Lamb Portfolios

Given the above, our investment team are somewhat cautious still and believe that within our Wealth Preservation range of portfolios that it is more important that we continue to try and protect against any potential market downturns than look to take on higher levels of market exposure and volatility. We will continue to monitor the economic scene, of course, and will make amendments to the strategies as and when we feel this is necessary, without just being sucked in by the market ‘noise’ and short term movements.

Following a difficult period for our portfolios in the middle months of last year, we were very pleased with the way the portfolios stood up during the last quarter of 2018 and how they have subsequently fared in the first part of this year. A table highlighting the performance of the portfolios for the first quarter of 2019 is shown below:

John Lamb Portfolios – 1st January 2019 to 1st April 2019

Performance*

Decumulation Strategies

Portfolio : John Lamb Risk Profile 1 Cautious

2.30

Portfolio : John Lamb Risk Profile 2 Cautious

2.60

Wealth Preservation Strategies

Portfolio : John Lamb Risk Profile 3 Cautious to Moderate

4.19

Portfolio : John Lamb Risk Profile 4 Moderate 

4.82

Portfolio : John Lamb Risk Profile 5 Moderate

5.76

Portfolio : John Lamb Risk Profile 6 Moderate to Adventurous

6.75

Accumulation Strategies

Portfolio : John Lamb Risk Profile 7 Moderate to Adventurous

9.07

Portfolio : John Lamb Risk Profile 8 Adventurous

10.29

*Performance shown is calculated using Financial Express and is net of underlying fund charges and discretionary management fees.

John Lamb advice fees and platform charges are not included which means investor returns will be slightly different to those shown above – these are for illustrative purposes only.

By way of comparison the world stock market has seen a rise of 9.87% over the same period, in Sterling terms.

Within the Wealth Preservation portfolio our ‘Satellite’, or risk, holdings had a very good quarter. The star performers over the period were the Investec Global Strategic Equity fund (12.14%) and our US equity funds: the Miton US Opportunities Fund (10.71%) and the JPS US Equity Income Fund (11.36%). The only real laggard in the Satellite was the Stewart Investors Asia Pacific Leaders Fund (1.09%), however the long term performance of the fund is very strong. 

The ’Core’ or defensive part of the portfolios also saw good returns, although nothing like the returns that were seen from the Equity funds in the portfolios. The Galatea fund was the standout performer. It had a very good quarter, returning 4.54% with very low levels of volatility.

The portfolios were helped by the rebalance that took place in December, which introduced some new elements to the ‘Core’ which helped stabilise things, but also from the slight increase in allocation to the ‘Satellite’ throughout most of the models. 

Whilst we are happy with the performance over the early part of the year our investment team are looking at any changes that need to be made and we will likely see a rebalance in the next month or so to take account of the current economic and market outlook.