Since the launch of the True Potential Portfolios in 2015, over £2.1 billion has been invested across the 10 Portfolios.
Each month, our Investment Management team and our fund manager partners conduct the re-balancing process. In this meeting they analyse what has been happening in the markets, discuss their tactical view for the next three months and how this fits with their long-term strategic vision.
Key Themes from March
Below provides a summary of the key themes raised in the re-balancing meeting. The themes offer an added perspective on what is currently happening across the markets.
Europe
Political tension has eased following the defeat of the far-right party in the Dutch elections and Marine Le Pen losing ground in the run up to the French elections
The Banking Sector is regarded as on the mend and loan growth is accelerating, presenting a positive outlook. Earnings are improving and economic growth outstripped that of the US last year. The only concern is around the withdrawal of Quantitative Easing (QE) and what effect that may have on the market. However, reducing reliance on QE is a signal that economic growth is becoming self-sustaining.
Trump
On the prospect of meaningful tax cuts, infrastructure spending and a relaxation of regulation, the market has performed positively. However, there is a growing acknowledgement that any spending will require Congressional support and support from his own party is not a certainty.
Valuations
Valuations are for the most part regarded as stretched relative to history. The US is on a price earnings ratio of 18x, Europe 15x and the UK 14x. This makes markets vulnerable to growth and earnings disappointments.
Emerging Markets
Commodity markets have been strengthened by the reflationary expectations associated with Trump. If his growth policies are obstructed in the short term, emerging economies which benefit from rising commodity and material prices, may see their stock markets being tested.
China and its slowing growth path sit in the background. Tilting policy used to stimulate domestic demand, would help offset worries that China will over produce goods and export yet more disinflation to the developed economies.
Currencies
The pound is viewed as towards the bottom of its trading range and undervalued on most measures on notwithstanding the potential for short term volatility around Brexit negotiations.
Bonds
The difficulties associated with investing in bonds, against a back drop of increasing inflation and rising interest rates, are appreciated by all the fund managers. While some believe that structural pressures such as the high level of global indebtedness and an ageing population will keep core inflation subdued, bond prices high and yields low, others remain in cash looking for yields to normalise.
Inflation
The re-balancing process meeting with our Investment Management team and fund manager partners was held before the recent rise in headline CPI to 2.3% was announced. Prior to the release of the figures the fund managers were generally sanguine about inflation, expecting it to pick up on the back of improving earnings figures and wage growth before falling back as higher oil prices fall out of the calculations and Trump euphoria potentially subsides.
Equity Income
While it was acknowledged that within the market there were some companies overpaying or relying on one off currency gains to fund dividend payments. As long as earnings continue to grow dividends should be supported.
[button_link color=”purple” text=”Find out more about True Potential Portfolios” link=”https://www.tpllp.com/true-potential-portfolios/”]
< Back to Blog