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Defensive Portfolio Update

25 January 2018

Winter Review: Fourth quarter performance analysis for the Defensive Portfolio.

The Defensive Portfolio posted healthy returns over the final quarter of 2017.

Stock markets performed strongly over the course of 2017 while volatility struck new lows.  The VIX, used as an indicator of volatility on the S&P 500, has a long-term average of 20.0, but in 2017 the average daily close was 11.1 – the lowest of any recorded year (since VIX’s founding in 1986) by more than 1.5 points. Improvements in global growth and corporate earnings played their part in holding down volatility, as did a series of European electoral wins for centrist candidates. Low volatility provided a tailwind for the Schroders-run mandate within the Multi Asset fund, enabling it to participate in the broader stock market rally.

Both commodities and corporate bonds picked up in value in the fourth quarter.  The price of a barrel of Brent crude rose from just above $55 to above $66 across the three months. Commodity price momentum benefited the Alternative Assets fund over the period, compensating for a more lacklustre year over the previous three quarters.  The fund also has significant holdings in corporate bonds in both the US and emerging markets, which acted as a further boost to performance.

Although it slipped marginally against the euro, the value of sterling rose versus the dollar over the course of the year. Gilt yields, however, remained stubbornly low through 2017, in contrast to the US and Germany, where yields rose as rising confidence led investors to seek out riskier assets. A combination of political uncertainty and unspectacular growth in the UK held investors back from exiting the safe haven asset of government bonds.  The Gilts fund, which invests largely in shorter-dated government bonds, ended the year essentially flat, as short-term yields (which move inversely to prices) remained subdued, reflecting expectations that interest rates are unlikely to increase rapidly in the near term.

The Diversified Bond fund ended a strong year more quietly.  The fund’s European credit mandate which is run by  TwentyFour Asset Management, performed especially strongly. Bond prices rose over the course of the year, aided by supportive central bank policies – the rally was only arrested in the final two months of the year. In October, the ECB announced it was tapering its monthly asset purchases by €30 billion, but also extending its programme to at least September 2018.

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


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.

© S&P Dow Jones LLC 2018; all rights reserved


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