Conservative Portfolio Update - Winter 2018
Fourth quarter performance analysis for the St. James's Place Conservative Portfolio.
A number of headwinds weighed on the Conservative Portfolio over the quarter.
It was a tough quarter for risk assets globally. In the US, the S&P 500 lost 14% over the three-month period, reflecting a range of factors: the fall from grace of the ‘tech majors’; fears that the boost from Donald Trump’s tax cuts package would soon peter out; slowing growth in China; the continuing Sino-US trade war; and fears over central bank policy worldwide beginning to turn tighter.
The Global Equity fund, co-managed by BlackRock, Edgepoint, J O Hambro and Sands Capital, weighed on Portfolio performance. Sands Capital saw some of its equity holdings detract from performance through the period. Among these were Zalando, Adyen, Netflix, ASOS and Charles Schwab. Adyen, a Dutch payment processor, suffered market blowback when MSCI, a leading index provider, chose not to add the company to its indices.
“We view this as a short-term factor that doesn’t reflect any changes in the underlying business,” Sands reported. “In fact, we recently raised our long-term estimates based on research on Adyen’s in-store point-of-sale (POS) processing opportunity. We now expect POS – not just e-commerce – to be a material contributor to growth.”
The Worldwide Opportunities fund, co-managed by Artisan, Burgundy and Select Equity, suffered from some of the same political and macroeconomic headwinds, as well as from high exposure to technology stocks, which underperformed. More specifically, stock selection and timing issues cost Artisan; although the team made some gains from Kingfisher, a UK retailer, it sold the stock ahead of a significant rally late in the year.
The International Equity fund, managed by Magellan, also detracted from Portfolio performance. Although the fund delivered positive performance over the year as a whole, the fourth quarter heavily pared gains made earlier in the year. Among the better performers was Starbucks, which enjoyed a strong boost on markets after the company announced better-than-expected earnings and revenues for the third quarter. The earnings beat followed two years in which investors had expressed disappointment at the pace of growth.
While both equity and bond markets suffered over the quarter, government debt performed well; sovereign bonds tend to act as a harbour for investors during broader market downturns. The Index Linked Gilts fund, managed by BlackRock, delivered a positive performance over the period, as investors exited equities in favour of UK government debt.
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Portfolio fund allocations are not rebalanced automatically. Thus Client Portfolios may not include all of the stocks mentioned in the commentary, as fund allocations may vary between clients, leading to different investment experiences.
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