Market Outlook Report – March 2018

Market Overview

March 2018

Recent Global Market Turmoil

Britain’s blue-chip shares have suffered their worst quarterly fall in nearly seven years as fears of an international trade war with the United States and a tech market sell-off battered stocks.  After enduring intense volatility this year, the FTSE 100 closed up 11.87 points at 7,056.61 last night. While it marked a gain of 0.17 per cent on the day, shares on the index have lost 8.2 per cent of their value this year.  That is the worst performance since the third quarter of 2011 and came despite the FTSE 100 hitting a record high of 7,778.64 in mid-January, since when it has fallen by 9.3 per cent.

Things weren’t helped when, in mid-March, President Trump threatened to impose $60 billion tariffs on Chinese imports to counter Beijing’s alleged theft of American trade secrets and to rebalance a $375 billion deficit in goods traded.  China responded with a threat to impose $3 billion tariffs on imports of US farm produce and metals, leading to fears that the world’s largest economies were on the brink of a trade war.  As a result, US stock markets suffered their worst week since January 2016 as investors pulled money from American shares and put it into safe-haven assets. 

Looking Ahead

After the rollercoaster ride we have experienced so far this year, some investors who have grown used to stock markets’ positive returns may be feeling queasy.  That does not mean we should rush for the exit, however.  “Markets do not rise in straight lines”, says Nancy Curtin, Chief Investment Officer of Close Brothers Asset Management.  Our view is that 2018 will be  a year in which world markets deliver more modest returns and we also expect the volatility to continue – but it’s important to recognise that ups and downs are absolutely normal, even in [an overall] rising market”.  The Reeves Investment Team share this view, subject to some minor tweaks to our model investment portfolios, which are explained later in this Market Outlook report.

Reeves Model Investment Portfolio

Once again, all of our model investment portfolios have performed better than our FTSE All-Share Index benchmark during March.  Also, our model portfolios have behaved in the orthodox manner we would expect during a market correction.  In a bullish market when the FTSE All-Share index is in positive territory, we would expect our Adventurous model portfolio to outperform our Balanced portfolio and for our conservative Cautions fund to bring up the rear (as happened in January).  Conversely, when there is a market correction and the FTSE All-Share index is in negative territory, we would expect our Cautious model portfolio to show more resistance/resilience, and perform better than our Balanced and Adventurous portfolios.  This is exactly what happened in March, as reflected in the graph below.

Reeves Model Portfolios Investment Performance Between Feb & March investment meetings.

As the market (as measured by the FTSA All-Share Index) has fallen by approximately 11% since its peak in January, we remain cautious about near-term prospects.  That’s why we have maintained a 32.59% cash balance, which has been a bold position to take but it has certainly mitigated our clients’ exposure to market risk and the significantly reduced the impact of the recent market downturn.

Whilst maintaining a sizeable cash-flow has limited our measured exposure market risk & volatility, around 23% of our selected collective investment funds have produced positive returns over the past month, despite the overall decline in global market values.  This is particularly pleasing and noteworthy.

A number of our clients have benefitted further, by electing to reduce their market risk exposure by switching model investment portfolios in recent months have benefitted from such a cautious tactical move.

During our monthly Investment Team meeting, the Reeves Investment Team met with Regional Representatives from Coram Asset Management, who manage three open-ended investment companies (OEICs), managed by MitonOptimal UK Limited, namely the Coram Global Defensive fund, Coram Global Balanced fund & the Coram Global Opportunities fund.  The uninspiring performance of all three funds didn’t impress the Reeves Investment Team, nor ignite the desire to incorporate any of them within our model investment portfolios.

The Reeves Investment Team also met with representatives from First Trust.  The meeting was useful and informative, and whilst their funds were of more interest, again the Investment Team was not minded to make any changes to our model investment portfolios based on this meeting.​​​​

The changes that have been made following last month’s Reeve’s Investment Team meeting include:

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    Selling 50% of our European Smaller Company funds in our model investment portfolios only, to increase the level of cash, pending future investment;
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    Selling Fidelity Special Situations unit trust and reinvesting the proceeds into the Liontrust Special Situations & Marlborough Special Situations unit trusts;
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    Selling Jupiter North American Income unit trust and Schroder US Mid Cap unit trust and investing the proceeds into the iShares Core S&P 500 ETF and Fidelity American Special Situations unit trust; &
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    Adding to our exposure to the biotech sector, by doubling our investment in the AXA Framlington Biotech unit trust from 1% to 2%

Email communications will be going out shortly to those clients whose investment portfolios are affected by these latest strategic changes.