Market Outlook Report – April 2017

Overview

During this month’s Investment Team meeting, it was decided to make no changes to the composition of our model investment portfolios. This follows the strategic changes we made last month, which have proven to be wise judgements, based on subsequent economic news and independent investment analysis, which is summarised below. We can’t guarantee to get everything right every time, but we are pleased that our recent judgements in particular have proven to be wise and financially beneficial for our clients.

Of particular note is that one of our recently selected investment trust companies (Electra Private Equity Plc) paid out a £1.0 billion special dividend that investors will receive on the 5th May 2017. At 2,612p per share, this special dividend represented a yield of 53.09%. Following the immediate technical market price adjustment, the adjusted share price has subsequently continued to rise. Identification and selection of this particular investment trust company by the Reeves Independent Investment Team has proven to be a very shrewd decision for our adventurous clients.

UK

The International Monetary Fund has upgraded UK growth for the second time in six months, after conceding that it had been wrong about the short-term economic impact of voting to leave the European Union. Britain is now forecast to grow by 2 per cent this year, almost double the 1.1 per cent projected in October and higher than the IMF’s raised outlook of 1.5 per cent in January. No leading G7 nation was upgraded by more.

However, cracks in the UK economy’s post-referendum resilience are beginning to show. Weaker sterling has pushed up inflation, while wage growth remains sluggish, leaving households with less money to spend. Recent retail sales figures showed the first quarterly fall in volumes since 2013.

Consumer prices in the United Kingdom rose by 2.3 percent in the year to March 2017, the same pace as in February. Almost 22,000 companies are facing “significant” financial distress because of rising food and fuel prices, according to an analysis that predicts a serious squeeze for businesses. A report by the insolvency firm Begbies Traynor said that it was “only a matter of time” before businesses grappling with inflation and a weaker pound were forced to pass on costs to customers, risking a fall in sales.

Theresa May’s recent announcement of a snap general election sent the pound soaring and shares tumbling. The prime minister’s decision triggered a sharp rise in sterling, up by more than 3 cents to $1.28 - the highest it has been since May made clear, in October, that she intended to take the UK out of the single market.

The general election campaign will coincide with a growing squeeze on consumer spending. Inflation has soared — hitting 2.3% last month — as the weaker pound pushes up the cost of imported goods

UK inflation soared last month as the weaker pound pushes up the cost of imported goods.

Reeves Independent hasn’t had to react to these economic and unforeseen political developments, as we have already proactively pre-empted it by reducing our exposure to UK (as well as US) equities, following our monthly Investment Team meeting in March.

Nevertheless, mid-sized businesses have brushed off fears of a post-Brexit downturn as they grew more quickly than their German, French, Spanish and Italian counterparts over the last year, according to BDO, the accountancy firm. British companies with sales of between £10 million and £300 million were more profitable than their German, French, Spanish and Italian counterparts over the past year and have outperformed their major continental rivals over the past five years, BDO said.

Reeves Independent is well placed to take advantage of this growth in mid-sized UK businesses, with our core holding in the JPMorgan Mid Cap Investment Trust plc, which we have retained as a long-term core holding.

US & Europe

Global investors are pulling cash out of America and sinking it into eurozone shares, in spite of the uncertainty surrounding the looming French election, according to the latest monthly poll of investor attitudes. The great majority reckon that US equities are overvalued, with allocations of fresh money to Wall Street at their lowest level for nine years, according to a survey of professional investors by Bank of America Merrill Lynch.

Global investors are pulling cash out of America and sinking it into eurozone shares.

By contrast, the eurozone is the most favoured location for new investment, with a large majority of institutional investors going overweight in the region. French stocks are some of the most sought after.

Reeves Independent isn’t reacting to this recent economic news and investment analysis – we have already proactively pre-empted it by reducing our exposure to US equities, following our monthly Investment Team meeting in March. We have added diversification to the emerging markets via the Blackrock Frontiers Investment Trust PLC (which is a consistently strong performing investment trust company, that won Best Emerging Markets Investment Trust category in the Money Observer 2015, 2016 and 2017 Investment Company of the Year Awards and the Investment Week 2015 and 2016 Investment Company of the Year Awards). We have maintained our proportionate asset allocation within our selected European funds (JPMorgan European Smaller Comp Ord, Lazard European Smaller Coms C Acc, Schroder European Sm Cos Z Acc & Threadneedle Eurp Smlr Coms Z Inc GBP), which continue to perform well, with the prospect of further growth.

Gold

Gold soared to a five-month high and the dollar weakened after President Trump recently suggested the US currency was “getting too strong”. The precious metal peaked at $1,288.02 per ounce in early trading in London, hours after the dollar slid to a two-week low. Both stabilised later and gold pulled back to $1,286.

Gold price soared to a five month high. The precious metal peaked at $1,288.02 per ounce.

Reeves Independent isn’t reacting to this recent economic news and investment analysis – we have already proactively pre-empted it by increasing our exposure to gold by 1%, following our monthly Investment Team meeting in March.

Oil/Energy

The global oil market is “very close to balance” after compliance by OPEC with promised production curbs, the International Energy Agency has said. Oil prices have stabilised in recent weeks and could be boosted further if the cartel decided to extend its output reductions beyond the summer. An extended agreement should lead to bigger a draw down of global stock inventories, which fell in OECD nations in March as demand outstripped supply, but remain well above historical averages.

Following our monthly Investment Team meeting in March, we added 1% to the oil sectors via selected Exchange Traded Funds (ETFs), which individually hold positions oil commodities and trade close to the underlying commodities’ net asset market value.

Conclusion

Much of the economic news, market analysis and individual fund performance over the past month have vindicated many of the recent key strategic investment decisions made by the Reeves Independent Investment Team. We would therefore urge all our clients to promptly respond to our suggested investment portfolio changes whenever they are communicated. We are proactive in our constant investment monitoring and market analysis, solely for the purpose of protecting our clients’ investments as best we can.

The performance of our balanced portfolio is highlighted below.

Version 17D - Balanced Portfolio - 27/04/2017

NameTotal Ret
1 Mo
(Daily)
Total Ret
3 Mo
(Daily)
Total Ret
6 Mo
(Daily)
Total Ret
1 Yr
(Daily)
Marlborough Special Situations P Acc6.2310.9421.4629.02
JPMorgan Mid Cap Ord5.5813.7018.7721.02
Lazard European Smaller Coms C Acc4.909.8612.4828.08
TR Property Ord3.839.763.0812.06
Threadneedle Eurp Smlr Coms Z Inc GBP3.8010.1910.7631.94
Schroder European Sm Cos Z Acc3.3610.6413.0037.02
Fidelity Special Situations W Acc2.676.6011.6923.06
Empiric Student Property PLC2.624.629.5512.33
Liontrust Special Situations I Inc2.185.7610.2923.25
JPMorgan European Smaller Comp Ord1.8611.189.3834.67
Summary1.425.077.4822.51
IP High Income Acc1.405.425.5811.69
Henderson Global Technology I Acc1.297.829.8547.05
AXA Framlington Financial Rl Acc1.213.8712.6235.13
AXA Framlington Global Technology Z Acc1.148.168.4848.55
AXA Framlington Biotech GBP Z Acc0.885.487.9917.15
Threadneedle UK Prpty Authrsd Invmt IGA0.792.009.08
F&C UK Property 2 inc0.73-0.071.781.18
MedicX Ord0.493.106.3814.15
Benchmark:FTSE AllSh TR GBP0.484.197.9120.52
Aberdeen UK Property I Acc0.261.563.61-0.88
Jupiter Financial Opportunities Inc0.263.063.0824.42
Tritax Big Box0.001.222.549.97
Investec Cautious Managed I Acc Net-0.050.303.8214.35
Target Healthcare REIT-0.301.264.765.48
Schroder US Mid Cap Acc-0.360.816.6732.59
GCP Student Living Ord-0.670.354.455.20
iShares Core S&P 500 USD (Acc)-0.942.227.1531.80
Baillie Gifford Shin Nippon Ord-1.696.26-1.3525.50
Jupiter North American Income Acc-1.761.246.4330.36
Fidelity American Special Situations-2.03-1.033.5627.36
BlackRock Frontiers Ord-2.982.505.9535.24
For technical reasons, the performance figures produced by Morningstar didn’t include a full range of statistics for Tritax Big Box and the system cannot produce statistics for the two Exchange Traded Fund Securities included in our model portfolio (ETFS Brent Oil 1 month ETC & ETFS Physical Gold)

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