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Defensive Portfolio Update - Spring 2018

20 April 2018

First quarter performance analysis for the St. James's Place Defensive Portfolio.

The Defensive Portfolio fell in absolute terms over the quarter.

Stock markets entered the year on a strong tack, boosted in part by the signing into law of Donald Trump’s US tax cuts package in November and by positive sentiment towards technology stocks.  Yet in February, fears about inflation and interest rates in the US sparked a sell-off, and markets around the world suffered a sharp correction.

The UK Absolute Return and Worldwide Opportunities funds struggled as the broader equity market downturn struck. Stock specific issues also impacted performance; Cenovus Energy, a Canadian oil and gas business, listed in Toronto, struggled as the market reacted to recent announcements.  The 2017 purchase of a new oil field operation hurt the company’s balance sheet, at least in the short term, and this year the company began layoffs that will see the departure of around 15% of its workforce.

Bond yields, which move inversely to prices, rose over the course of the quarter, reflecting concerns about rising inflation leading to higher interest rates. In March, Jerome Powell, the new Chair of the US Federal Reserve, announced that the central bank was raising rates by 0.25%, and signalled further rises to follow. Markets had largely priced in these moves, but rising wage inflation added to worries that the Fed may yet need to move more quickly to maintain financial stability and prevent future bubbles.  These trends put pressure on bond prices.

Nevertheless, bond prices generally dipped far less dramatically than equity prices.  The Alternative Assets fund, managed by BlackRock, fell significantly over the period, as holdings in property, water, clean energy and global infrastructure assets were hit as volatility returned to equity markets. However, exposure to timber and fixed income investments – particularly investment grade bonds – set a cap on losses.

This was a theme across the Portfolio, as losses were held in check, to some degree, by relatively high exposure to bonds. The allocation to the Diversified Bond, Gilts and Investment Grade Corporate Bond funds accounts for almost a third of the Portfolio.  Whilst all of the fixed income funds in the Portfolio lost value over the quarter, losses were much smaller than those suffered by equity-based funds.

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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