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Deferred Income Portfolio Update - Summer 2018

20 July 2018

Second quarter performance analysis for the St. James's Place Deferred Income Portfolio.

The Deferred Income Portfolio posted strong returns over the quarter, aided by its high equity exposure and by positive stock selection.

Since the financial crisis, bond markets have received unprecedented levels of financial support from central banks, as trillions of dollars have been pumped into government bonds. During the second quarter, those banks travelled a little further down the path of unwinding that process. The Federal Reserve has led the way; in just four weeks to 4 July, it unwound a total of $29.4 billion. The ECB is significantly further behind but Mario Draghi, President of the European Central Bank (ECB), said in June that the ECB would halve its monthly purchase of assets later this year.

Although these moves represent growing confidence in the global economy, they also create short-term pressures on bond markets. These pressures were felt by bond funds in the Portfolio over the three-month period. The Strategic Income fund posted limited losses during the quarter, reflecting in part its exposure to emerging market bonds, while the Corporate Bond fund, managed by Invesco Perpetual, fell by a much smaller proportion.

The Deferred Income Portfolio is heavily weighted towards equities, however, which benefited overall performance, since equities enjoyed a strong run, boosted by positive global growth and strong corporate earnings in the US.

The Equity Income fund, managed by RWC, benefited from its UK equity exposure, as the FTSE 100 enjoyed its strongest quarter in several years, aided by a weakening pound. Allocations to energy majors contributed to performance, as did stock selection. Pearson was among the fund’s strongest holdings; a positive earnings report early in May suggested the publishing company may be doing a good job of turning around what had been a struggling business.

The UK High Income fund, managed by Woodford Investment Management, benefited from similar trends on markets. One notable strong performer in the fund was Capita. The company issued a profit warning and warned of a major restructuring at the end of January, causing a steep fall in the share price. But the stock gained in value over the second quarter, in part as investors concluded it had been oversold, but also on the back of a new £500 million Ministry of Defence contract to run military and fire rescue services.

The Worldwide Income fund, managed by Investec, had a strong run across the quarter, boosted by both rising markets and individual stock selection – Nike and Unilever were among the risers.

You may also like to access the full Deferred Income 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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Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.

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