Defensive Portfolio Update - Winter 2018
Fourth quarter performance analysis for the St. James's Place Defensive Portfolio.
The Defensive Portfolio posted a negative return over the quarter.
Global equities suffered over the period, falling dramatically on a range of fears relating to growth, trade and politics; but also because, in aggregate, central banks began to pull away support from markets for the first time since the global financial crisis. While the European Central Bank ended its quantitative easing programme in December, the Federal Reserve had already begun quantitative tightening in the Spring.
The Multi Asset fund, the largest fund weighting within the Portfolio, suffered the majority of its 2018 losses over the final quarter. Poor asset allocation decisions against a volatile financial backdrop proved costly.
Major tobacco stocks suffered in November, following news that the US Food & Drug Administration was considering a ban on menthol cigarettes and stricter rules on e-cigarettes. Big tobacco also continues to suffer disruption from next generation products. British American Tobacco’s underperformance weighed on the UK Absolute Return fund, managed by Blackrock.
Information Technology stocks suffered a particularly bad final quarter of 2018, after several years of exceptional growth. In part, this reflected the accelerating Sino-US trade war, but worries over regulation and a profit warning from Apple caused some of the largest technology companies in the world to drop in the final quarter, taking global stocks down with them. These falls hurt the performance of the Worldwide Opportunities fund, co-managed by Artisan, as both Chinese and US tech majors suffered price falls, among them Baidu and Alphabet, Google’s parent company. Losses for the fund over the quarter weighed heavily on broader Portfolio performance.
The Autumn equity sell-off on global markets also saw investors head to safe havens such as government bonds. The Gilts fund delivered a positive performance over the period, in line with this risk aversion, as corporate bonds struggled. Risk aversion on global bond markets over the period lay behind the negative performance of the Diversified Bond fund, co-managed by Payden & Rygel, Brigade and TwentyFour. For TwentyFour, returns were hit by widening spreads in European high yield bonds and by European bank debt; Europe’s banks remain a worry on markets, especially in light of the end of quantitative easing.
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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.