Market Outlook Report – November 2017

Reeves Monthly Client Market Outlook Reports

During a recent client meeting, Nigel was asked whether our monthly Client Market Outlook updates were generic ‘off-the-shelf’ reports produced by/copied from a third party. Whilst this misconception was taken modestly as a complement on the quality of our reports, we wanted to clarify that all our publications are compiled in-house over the reporting period by our Investment Team. Whilst much of our coverage will inevitably be generic, reflecting topical economic events, germane investment market news and ongoing political developments, we always endeavour to tailor our coverage to explain how these wider macro issues specifically affect our investment strategy and their impact on our clients’ investments. And so to this month’s overview.

Market Overview

The first thing to highlight is the positive performance of our in-house managed funds, compared with the FTSE All-Share Index benchmark. As the graph below illustrates, all of our funds have significantly out-performed the benchmark index. This reflects the fund choices selected by the Reeves Investment Team and their positive performance since acquisition. We are happy that our investment strategy is able to deliver such positive returns even when global stock markets generally are dragging asset values in the opposite direction. We can’t get everything right all of the time, but our informed clients understand the challenges we face and benefit from the strategic diversification and well-researched fund selection decisions we have made. We endeavour to continue delivering positive results and outperform underlying market benchmarks going forward.

The above graph illustrates our portfolio performance from the month start until our recent investment meeting.

Following the strategic portfolio changes made last month, it was decided during the November Investment Team meeting not to make any additional changes this month. Our meeting inevitably highlighted particular areas of focus and identified specific funds which we were closely monitoring, we will wait until the New Year before making any incremental changes. We appreciate that constant portfolio changes are time consuming for our clients and there are inevitable transaction costs in implementing such changes. However, they are only ever made with the best intentions for our clients, i.e. to protect your pension funds as best we can and to optimise the potential for those funds to grow.

UK

It is less than two weeks since Philip Hammond delivered his budget. Hammond will go down as the chancellor who, against the traditions of the election cycle, loosened policy after a general election, even though there was no real room to do so, a reflection of the government’s very weak position. If it is followed by an agreement at the EU summit on December 14-15 that “sufficient progress” has been made to move on to trade, Theresa May’s administration will end the year in a stronger position than it dared hope a few weeks ago, when cabinet ministers were falling like ninepins. A government that is stable, if not strong, will help business and consumer confidence.

Meanwhile, the FTSE 100 has recently come under pressure due to renewed confidence about Britain’s departure from the European Union. This helped sterling to complete its best month in November since April 2015. However, the FTSE, which is dominated by companies that report their earnings in dollars, often struggles when sterling rises. The pound hit a ten-week high of $1.355 last Thursday.

As the market turbulence and uncertainty continues, we remain comfortable with our strategic balanced approach to our investment portfolios. We have maintained a sizeable cash balance as a prudent measure to take advantage of a major market downturn, whilst maintaining diversified portfolio of shares with exposure to wider global markets. Meanwhile, we are beating the market.

We have been particularly pleased with our recent acquisitions in the Pyrford Global Total Fund and the Threadneedle Dynamic Real Return Fund. Both were selected as relatively low-risk funds, with the Pyrford Global Total Fund investing in a combination of shares, government bonds and cash with the aim of delivering attractive long term growth with less volatility than the stock market. The Threadneedle Dynamic Real Return Fund is a research-driven multi asset portfolio targeting equity-like returns with around two-thirds the volatility, which targets an inflation +4% (gross) return, regardless of market conditions over the medium. As explained in our previous Market Outlook report, both fund managers share our risk-averse, cautionary position and the selection of these funds reflects our stated objective of finding optimum investments which provide an attractive return within a safe and liquid investment product. Both of these funds have performed modestly well in the very short period that we have included them in our investment portfolios, against a backdrop of dreary market conditions.

Closing Comments

November has proved to be a painful month for equity investors. Battered as the pound has risen on hopes of a Brexit “deal” the FTSE 100 ended the month down 2.1 per cent yesterday. Will December prove any more profitable? It is historically the best month of the year for the markets, prompting talk of a “Santa Claus rally”. According to The Harriman Stock Market Almanac the index has fallen only three times in December since 1995, although two of those times were in 2014 and 2015. Whatever happens in the markets generally, we believe that our diverse investment portfolios will continue to maintain their respectable performances against the market indices benchmarks and protect our clients from the worst affects of any potential market downturn. That’s our job and to date we have been pleased with the strategic decisions we have made during 2017. We hope to continue achieving the same results in 2018.

In the meantime, the entire Reeves team would like to wish each and every one of our clients a very happy Christmas and a peaceful and prosperous New Year.

If you would like to read our more detailed Market Outlook report, please click the button below.