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Defensive Portfolio Update - Autumn 2018

24 October 2018

Third Quarter performance analysis for the St. James's Place Defensive Portfolio.

The Defensive Portfolio achieved a positive return over the period, aided by the performance of corporate bonds and global equities.

The quarter opened with the prime minister finally publishing a Brexit plan but, by quarter-end, the plan looked all but dead, having sparked two senior Cabinet resignations and attracted severe criticism from the European Union and several of her own MPs.

In this context, although UK growth remained steady, it was perhaps unsurprising to see business investment in the UK falling sharply and sterling remaining under pressure. Government bonds suffered, and the Gilts fund slipped marginally, detracting from overall Portfolio performance.

More significantly in Portfolio terms, however, it was a positive period for corporate bonds generally, and for high yield bonds in particular. The Diversified Bond and Investment Grade Corporate Bond funds both contributed to Portfolio performance. The Diversified Bond fund, co managed by Payden & Rygel, Brigade and TwentyFour, was particularly lifted by a holding in Sprint Corp, a US telecoms company. The Investment Grade Corporate Bond fund, managed by Loomis Sayles, likewise gained from its exposure to the telecoms sector.

But Loomis issued a warning on Brexit developments in its September report – and their capacity to influence economic trends. “Fears of a no-deal Brexit are rising,” the report said. “We believe an agreement will be needed by January 2019 at latest … [and] the UK’s economy would likely take a bigger hit from a no-deal Brexit than the EU.”

The most significant contributions to overall Portfolio performance came from the Worldwide Opportunities and Multi Asset funds. The Multi Asset fund, co-managed by Invesco Perpetual, Payden & Rygel and Schroders, has the largest weighting of any fund in the Portfolio and invests across a range of asset classes.

One of the strongest-performing sectors on equity markets during the quarter was healthcare, which benefited from strong profits, and signs of some investors treating the sector as a safe haven, given demographic trends. The healthcare boost aided performance of the Worldwide Opportunities fund. Burgundy’s holding of Johnson & Johnson was among the most significant contributors to returns – the healthcare major beat expectations in its earnings report for the second quarter.

The UK Absolute Return fund was the most significant detractor from performance. It suffered due to a high weighting to industrials in general and, more specifically, its holding in Rentokil Initial, a UK business services company, as first-half profits disappointed.

You may also like to access the full Defensive Portfolio Update.

 

The price of funds and the income from them may go down as well as up. You may get back less than the amount invested.

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.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

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