Conservative Portfolio Update - Summer 2018
Second quarter performance analysis for the St. James's Place Conservative Portfolio.
After a tough first quarter, the Conservative Portfolio enjoyed a strong second quarter, aided by its allocation to global equities.
One of the key financial trends over the period was the strength of economic growth in the US, which was accompanied by strong corporate earnings – and yet inflation remained relatively controlled. All these trends helped to push up the value of the dollar. UK investors with dollar holdings therefore benefited, but the same trend also aided some multinationals on the FTSE 100, since most of their earnings are made outside the UK. This was among the reasons that risk assets underwent a marked recovery in April.
Due in part to these trends, and in part to strong stock selection, three funds dominated performance across the Portfolio: the International Equity, Worldwide Opportunities and Global Equity funds.
The International Equity fund, managed by Magellan, had a stellar run over the period, rising by more than 12%. The fund benefited from its significant allocation (of almost 40%) to technology stocks. Facebook was an important stock in this regard, as it recovered from the market effects of bad news in the first quarter, but so too were other household technology names, among them Microsoft, Apple and Alphabet (Google’s parent company). Yet there may be more to come for such companies, not least in the area of artificial intelligence (AI). “Alphabet is the company putting the most into AI, investing heavily in Google DeepMind, and is streets ahead of everyone else,” said Magellan’s Hamish Douglass. “It also owns Waymo [an autonomous car company] and aims to have 20,000 driverless cars in the US by 2021 – it’s a great commercial opportunity.”
Another notable trend over the quarter was the ongoing rise in the oil price, which ended the period not far off $80, having begun it at below $70. The rise reflected in part a production cuts deal made by major producers earlier in the year. The Worldwide Opportunities fund, a major contributor to performance in the period, benefited from exposure to energy. Artisan Partners, co-manager of the fund, contributed strongly to fund performance with its exposure to Noble Energy, which rose significantly over the period. The US company beat earnings forecasts in its June report, with improved cashflow and an increasingly honed focus on US oil and gas production.
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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.
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