Hub News #39

ISSUE 39

HUBNEWS AUTUMN 2018

BUILDING DEFENCES

Quantinomics™

Quant investing doesn‘t have to be a black box.

Behind the algorithms and computers are people researching and testing fundamentally based, economically motivated signals that drive our investment strategies.

Quantinomics gives a behind-the-scenes look into how we leverage technology and apply human judgement to make data-driven investment decisions.

Visit GSAM.com/Quantinomics THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by GSAM and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes.

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CONTENTS AND WELCOME

CONTENTS 4. The Comeback Kids 6. The Next Generation Of Equity Income Investing 8. Taking The Pulse Of Investors 12. Late-Cycle Dynamics And Low-Risk Portfolios 16. Capitalising On Change 18. Evolution Not Revolution 22. Dividends: Unloved,

Out Of Favour And Compelling 24. Why Multi Asset For Income?

27. Still In Bed With An Elephant 28. Beyond Politics: What’s Next For Latin America?

30. Ten Events That Matter To Investors In The Final Quarter Of 2018 34. The M&G Global Listed Infrastructure Fund: One Year On From Launch 38. Harnessing Man And Machine 4. Refreshingly Predictable 43. UK Equities: Adapting To Change 44. Advising Across Generations 46. Impact Investing

WELCOME There has been a notable change in market mood in recent months. US interest rate rises, the threat of an accelerating trade war and some volatility in emerging markets have all weighed on market sentiment. The S&P 500 may have hit new highs, but other markets – particularly emerging markets – have struggled.

More disruption may lie ahead.

The US mid-terms promise to be a referendum on Donald Trump’s leadership. If Republicans lose control of the House, Democrats may be sufficiently galvanised to open investigations into the Stormy Daniels affair, or even start impeachment proceedings.

At the same time, economic growth may start to roll over.

Inflation is gathering pace in the US and may force up rates faster than currently expected. The disruption is already being seen in the bond markets and equity markets may follow.

A number of commentators have pointed out that the recent disruption has made valuations look

more attractive. However, the advice has tended to be that investors should aim to sell on strength, rather than buy on weakness.

In this month’s issue, we look at how investors might start to build defences in this type of environment.

Within fixed income, Joubeen Hurren discusses the flexible approach of the Aviva Investors Multi-Strategy Fixed Income fund. Baillie Gifford’s James McAlevey shows that bells and whistles aren’t necessarily needed to deliver long-term consistency in a balanced fund.

The UK remains a problem area as the Brexit negotiations rumble on.

However, Square Mile and AXA Investment Managers suggest investors are starting to take a tentative interest. It looks like a brave call, but perhaps certain investors are anticipating a significant rally should a deal finally be agreed.

Cherry Reynard Editor www.adviser-hub.co.uk

ADVISER-HUB.CO.UK 3

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EMERGING MARKETS

THE

COME BACK

KIDS

Stephanie Butcher, European Equities Fund Manager, Invesco Perpetual explains why choosing what not to hold in a portfolio can be as important for long-term returns as choosing what to include.

“FOCUS ON VALUATION IS THE OVER-RIDINGhas PHILOSOPHY Rising US growth outperformance been a key feature of the macro THAT INFORMS ALLOCATIONS. environment in recent months.

At Goldman Sachs Asset Management, we TO OUR MINDS OVER-PAYING FOR with ANY ASSET, WHATEVER think this is now turning US growth likely to moderate from the ITS QUALITY, IS TAKING ON strong pace in the second quarter and converge somewhat with the rest ADDITIONAL RISK.”

of the world. This convergence creates the potential for a comeback in emerging market assets.

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EMERGING MARKETS

We expect some moderation in US growth and continued consolidation in the long end of US rates to be important aspects of the macro environment towards year-end. We think concerns about trade and EM contagion are overdone. We expect this macro environment to drive a comeback in EM assets after their recent underperformance.

FROM GROWTH DIVERGENCE SINCE THE SPRING...

Earlier in the year, we highlighted 1) upside risks to the US and Japanese growth outlook; 2) downside risks for Europe and China; and 3) reduced interest rate risk after the sharp rise in rates we had seen. Together we thought these developments created a better balance of risks.

Since then, the S&P 500 reached a new high and the US printed a very strong 4.2% growth in the second quarter. At the same time, we have seen weaker data in Europe and in China which, together with trade tensions, renewed market concerns about the Chinese growth outlook. In EM outside of China, growth has been weaker than we expected which, in addition to several country-specific risks, has caused significant underperformance in EM assets against our expectations.

…TO RENEWED GROWTH CONVERGENCE We now think this exceptional period of US outperformance is largely behind us. The US benefitted from strong fiscal policy support in the second quarter, which is likely to fade over time. Meanwhile, growth in Europe appears to be stabilising at a lower but more sustainable level than we saw late last year. The recovery in Japan, which had been more muted than we expected, is gradually continuing. In China, policy support has been firm in the face of weaker data and risks from trade, which we think will eventually generate a period of positive surprises. Outside of China, most EM countries have healthy economic fundamentals and should benefit from US growth. In our view, the weakness in EM assets reflects countryspecific challenges rather than a broad EM crisis, and the bigger picture is one of global growth converging at healthy levels after a period defined by US exceptionalism.

…AND CONTINUED CONSOLIDATION OF LONG END US RATES In the spring, we thought interest rate risk would return later this year after a period of consolidation in long-term rates. However, that consolidation now looks likely to continue until around the turn of the year. The market is pricing approximately 45 basis points of additional Fed rate hikes in 2018, suggesting markets will not be surprised if the Fed delivers the two hikes we expect. At the same time, inflation has been slow to firm, with the acceleration in year-over-year numbers this year largely reflecting base effects. With gradual inflation and a likely moderation in US growth, we think the Fed will want to keep its options open by waiting – at least until the run-up to the December meeting – to signal a more aggressive pace of rate hikes in 2019. We see plenty of signs of firming inflation, but we think it will take time before inflation becomes strong

enough to impact monetary policy more significantly.

A CHALLENGING INVESTMENT LANDSCAPE TO NAVIGATE… We think the investment environment will remain challenging to navigate and we continue to favour a dynamic approach to investment.

Trade and geopolitics are likely to be a continued source of volatility, and moderation in US growth could well lead to a temporary sell-off in US equities. We also worry about Italy’s budget negotiations and the outlook for Italian growth.

Despite these challenges, we think continued economic expansion and decent earnings growth will leave developed market (DM) equities higher by year-end. That said, we are less bullish on DM equities than we were earlier in the year as equities have recovered significantly. Also, while this update focuses on the rest of 2018, as we move into 2019 the risk to US growth becomes more nuanced as Fed policy continues to tighten while the impact of fiscal stimulus moderates further.

…BUT FERTILE FOR AN EM COMEBACK We think the recent US economic outperformance, combined with softer growth in many other economies, has been an underappreciated factor behind asset performance in general in recent months and EM underperformance in particular. We therefore see the shift to convergence – with US growth moderating while other economies stabilize – as significant. We think EM assets will be the clearest beneficiary, supported by our view that market fears of trade tensions and EM contagion are likely to prove overdone. More generally, we would also expect the US dollar strength to start to fade.

KEY FINDINGS 1

US exceptionalism has peaked.

We think the period of diverging growth rates – driven by strong US outperformance – is largely behind us. US growth benefitted from strong support from fiscal policy in the second quarter, which is likely to fade over time.

2

Interest rates are likely to remain near current levels into year-end.

We expect US interest rates to continue climbing over the longer term, but we see few catalysts for another significant move higher this year. With inflation rising gradually and US growth likely to moderate, we expect the Federal Reserve (Fed) to raise rates twice more in 2018, consistent with market pricing.

3

A challenging investment environment, but fertile for an EM comeback.

Trade tensions, political developments and the potential for a moderation in US growth raise the risk of a temporary pullback in equities later this year. However, we think US growth will remain above trend and economic fundamentals in most EM countries remain healthy, creating fertile ground for a comeback in EM assets.

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EQUITY INCOME

THE NEXT GENERATION OF EQUITY INCOME INVESTING Successful companies move with the times, but the hallmarks of quality stay the same. This ethos underpins the Investec UK Equity Income Fund, says manager Blake Hutchins.

The fund focuses on high-quality businesses that are able to invest in themselves for future growth – even in challenging market conditions. Hutchins, who has run the Fund since inception in 2015 and is supported by a team of 14 analysts and product specialists*, looks for several factors in companies including great business models, strong financial models and efficient capital allocation.

The team also likes companies that are capital-light. As these businesses do not consume too much capital, this can ultimately boost cash generation. ‘The beauty of finding such companies that can grow, earn good returns on their capital and are capital-light is that this provides these businesses with immense optionality,’ Hutchins says.

If you are capital-light and you have that compounding, growing cash flow stream, this enables the company and management team to do various things with that cash flow – which for us as income investors is very interesting, he adds. *As at 31 August 2018

FIVE WAYS TO STAY AHEAD Hutchins believes the best companies stay ahead by having the optionality to allocate their capital in a number of ways: M&A, capex, paying down debt, share buy backs and dividends.

Hutchins looks for companies which have the flexibility to do all five and views dividends as the most important. Here, he focuses on UK-listed businesses which have the potential to pay a growing dividend out of cash flow.

Unilever represents a prime example. The consumer goods company typically returns half of its cash flow to shareholders in the form of a dividend. It is then able to invest the remaining 50% back into the business for future growth.

M&A represents an area where Unilever has been particularly active in recent years – and Hutchins is supportive of its policy.

‘They are buying some very interesting smaller brands, which really resonate with the new, modern and younger consumer,’ he adds.

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The fund manager also highlights the company’s strong presence in emerging markets, where there is potential for higher growth.

Kone is another top pick within the Investec UK Equity Income Fund: ‘Kone not only make money when they install an elevator or escalator, they also service 1.1 million escalators and elevators around the world today. The beauty of that is it provides a recurring cash flow for the business,’ Hutchins explains.

In addition to the company’s market-leading position, the fund manager likes that it has one eye firmly focused on the future and is allocating capital with this in mind: ‘Kone is investing huge amounts of money in innovation. This is something we look for with businesses. We want them to be profitable today, but investing for the long term,’ he says.

For example, Kone has reacted to the fact that buildings are getting taller by developing the UltraRope product. This is super-light rope technology, which has a carbon fibre core and a special high-friction coating: ‘With UltraRope technology, which is unique to Kone, we think they are very well-placed to continue to innovate and develop their very strong product range,’ he adds.

Both Kone and Unilever have great business models, are cash-generative and make good returns on capital, Hutchins points out. What’s more, they are reinvesting for the future by innovating and carrying out selective M&A. ‘Whilst these businesses have delivered over the past few years, they should be well positioned to deliver for our clients over the long-term as well,’ Hutchins says.

‘POSITIVE CHANGE’ Typically, two-thirds of the Investec UK Equity Income portfolio are invested in quality companies that are able to compound cash flows and return a proportion of these to shareholders in the form of growing dividends.

The remaining third of the portfolio is allocated to companies that are undergoing

EQUITY INCOME

positive change, which has been underappreciated by the market.

‘Even good companies go through difficult times and this is what this one-third of the portfolio is trying to find: businesses that are fundamentally high quality, but are going through some dislocation or change that is being under-appreciated by the market today,’ he explains. More often than not, companies making it into this part of the portfolio are going through management change.

Premium fashion brand Burberry is a good example. After experiencing some turnover across its senior management team over the past few years, Hutchins believes the business now has ‘the right team in place’ under chief executive Marco Gobbetti.

Operating at the premium end of the market enables Burberry to generate high gross margins, which makes the business very profitable and cash-generative. While this provides solid foundations, Hutchins feels positive about the company’s recent decision to take incremental investment out of US department stores, in favour of the online proposition.

‘What Burberry is doing, to the detriment of

short-term profitability, is taking sales away from some of these legacy department stores and is investing in new channels for future growth,’ says Hutchins.

‘That does dent profitability and cash flow in years one and two. But actually over the long term, we think that makes Burberry much healthier and in a much better position to grow for the long term. That is a journey that we are happy to ride,’ he adds.

Rolls Royce is another well-known name that has experienced change at the top over the past few years. Under chief executive Warren East, positive change is now starting to come through, according to Hutchins.

The engineering company appears in the 40-stock UK equity income portfolio on account of its strong industry position, with 50% market share. Looking ahead, the fund manager expects the company to increase cash flow.

‘Warren East now has his arms around that business and you are starting to see some positive change coming through. For us, it is interesting that today whilst Rolls Royce does not generate much cash flow, their engine fleet that is flying around the world is

‘THE BEAUTY OF FINDING SUCH COMPANIES THAT CAN GROW, EARN GOOD RETURNS ON THEIR CAPITAL AND ARE CAPITAL-LIGHT IS THAT THIS PROVIDES THESE BUSINESSES WITH IMMENSE OPTIONALITY'

actually very young.

‘We think over a medium-term time horizon, there is inherently a lot of cash flow to come out of Rolls Royce. And if that happens, we could expect to see an abundance of cash flow enabling the company to invest for future growth and pay us a nice, growing dividend alongside that,’ Hutchins explains.

LOOKING AHEAD The unwinding of quantitative easing and the move towards higher interest rates represents a trend that the team is monitoring closely.

‘If interest rates rise to a level that is too high, it is going to be a shock to the consumer.

Therefore, we want to be in businesses that economically are not particularly sensitive and have that ability to grow come what may,’ he adds.

This means focusing on strong businesses that are able to invest for the future.

‘We are in a world today where there is increasing disruption – whether this is from the internet or changes within politics. We need to invest in companies that are well-positioned for the long term.

‘It is all well and good providing that defensive dividend today, but it is really the growth that is going to drive these companies over the long-term’.

‘We are very focused on investing in the companies that are thinking about their future and are going to be well-positioned for decades to come,’ Hutchins concludes.

For more information about the Investec UK Equity Income Fund, visit www. investecassetmanagement.com/UKEI Important information Target audience: This document is being provided for informational purposes for discussion with institutional investors and financial advisors only. Circulation must be restricted accordingly. Nothing herein should be construed as an offer to enter into any contract, investment advice, a recommendation of any kind, a solicitation of clients, or an offer to invest in any particular fund, product, investment vehicle or derivative. This communication is provided for general information only. It is not an invitation to make an investment nor does it constitute an offer for sale. The full documentation that should be considered before making an investment, including the offering memorandum, which set out the fund specific risks, is available from Investec Asset Management. General risks: The value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor's home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets may not necessarily be achieved, losses may be made. Specific risks: Geographic / Sector: Investments may be primarily concentrated in specific countries, geographical regions and/or industry sectors. This may mean that the resulting value may decrease whilst portfolios more broadly invested might grow. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. bankruptcy), the owners of their equity rank last in terms of any financial payment from that company.

ADVISER-HUB.CO.UK 7

INVESTOR SENTIMENT

TAKING THE PULSE OF INVESTORS The viewing statistics on Square Mile’s Academy of Funds lead to some surprising conclusions.

The UK has been out of favour, as investors have worried about the ultimate outcome of the Brexit negotiations. However, the viewing statistics for Square Mile's Academy of Funds suggests that investors may be willing to return to the sector. The Investment Association's UK All Companies sector was the most viewed peer group in Q2.

The sector received 12.6% of overall views in the second quarter, slightly down on the first quarter, but still ahead of their recent performance. The IA Equity Income sector – recently out of favour thanks to weaker performance – also drew interest, though this was largely attributable to a number of high profile funds, including Woodford Equity Income.

The Targeted Absolute Return sector also saw interest from investors.

An environment of low returns from equity and bond markets could argue for a higher weighting in the sector. A number of high-profile funds have disappointed on performance, but part of the problem remains that markets have been so strong for so long that many absolute return funds have not really been put to the test. Nevertheless, it remains a sector to watch.

Investors appeared to be agnostic on the absolute return approach, with the Legg Mason Brandywine Global Fixed Income Absolute Return, Standard Life Investments Global Absolute Return Strategies and Jupiter Absolute Return funds all featuring among the most-viewed. These are three very different approaches to the same problem – attempting to deliver returns across most market environments.

The IA Mixed Investment 20-60% shares sector is a perennial favourite with investors and has increased in popularity from Q1 to Q2. Investors may be seeking a ballast for recent volatility.

Asia Pacific has had a difficult few months as President Trump’s battle with China over trade has escalated. This has seen the Chinese stock market drop over 25%. Some canny investors may be spotting bargains across the Pacific region as Asian funds, including Japanese funds, have been attracting more views.

Asia Pacific ex Japan funds drew 5.1% of views, while Japan saw 3.7% of views (up 2% and 2.1% on the last quarter respectively).

In the meantime, bond funds slipped down the rankings. The sterling strategic bond and corporate bond sectors saw views drop 1.8% and 1% respectively. UK gilts attracted just 0.3% of views, down 0.8% quarter on quarter. There remains little appetite for expensive, defensive assets.

Emerging markets reflect the recent turmoil. Although share prices have fallen across emerging markets, investors don’t appear to be tempted back just yet. Neither the global emerging markets nor the China/Greater China sector attracted any notable interest over the quarter.

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Where investors were looking at emerging markets, they tended to return to tried-and-tested funds such as Aberdeen Emerging Market Equity and Invesco Asian.

The one exception was in the passive sector, where the Fidelity Index Emerging Markets fund saw a 4.9% jump in views. The IA Asia Pacific ex Japan sector saw the most passive fund views, with IA Global Emerging Markets third (after North America).

Within the Academy, the most viewed active fund was the £6.7bn LF Woodford Equity Income fund with 1.9% of the views, although hits were down 0.6%, having been down 0.9% in the first quarter. Long-term favourite Artemis Income saw the next strongest number of views, at 1.8%. The AXA Global Short Duration Bond fund also saw considerable interest among investors.

First State’s Listed Infrastructure fund saw a drop in views over the month. A change in the monetary policy climate has potentially diminished the appeal of infrastructure investments. As bond yields have risen, investors can increasingly find stable income elsewhere.

In terms of fund groups, Artemis hit the top spot again with 7.5% of views, but this was 1.6% down on the previous quarter. Aberdeen Standard Investments, Jupiter and Baillie Gifford saw the strongest rise in interest.

Schroders and M&G saw some weakness.

Although advisers are seeing many of their clients move to decumulation rather than accumulation, for the time being, capital accumulation remains the strongest priority for investors. 45% of searches had this as their key preferred outcome. Income was 31%, while capital preservation and inflation protection were just 13% and 11% respectively.

Risk-targeted funds continue to be popular with advisers as they seek to match client outcomes with their risk profile. Of these, the HSBC Global Strategy Adventurous Portfolio emerged as the most-viewed. The 7IM portfolios – Balanced and Adventurous – also drew attention. LGIM’s Multi-index funds saw a significant rise in interest as well. At the other end, SEI Global Asset Funds and Architas Multi-Manager saw a fall in interest over the quarter.

Square Mile's Academy of Funds has over 4,200 registered users while in Q2 it had 46,564 page views and 4,497 unique website visitors. As such, we believe, its views give a useful insight into investor thinking.

To access Square Mile's latest research and adviser insights please register at squaremileresearch.com/funds

SOME CANNY INVESTORS MAY BE SPOTTING BARGAINS ACROSS THE PACIFIC REGION AS ASIAN FUNDS, INCLUDING JAPANESE FUNDS, HAVE BEEN ATTRACTING MORE VIEWS.

Free Independent Research and Insight Square Mile is an independent investment research business that focuses first and foremost on in depth, qualitative fund research.

Register for free at the Academy of Funds to access our latest fund research, insight and opinion.

www.squaremileresearch.com/funds

Fund opinion, ratings and factsheets

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Adviser focussed educational reports

Important Information This advert is for the use of professional advisers and other regulated firms only. It is published by, and remains the copyright of, Square Mile Investment Consulting and Research Ltd (“SM�). SM makes no warranties or representations regarding the accuracy or completeness of the information contained herein. This information represents the views and forecasts of SM at the date of issue but may be subject to change without reference or notification to you. SM does not offer investment advice or make recommendations regarding investments and nothing in this presentation shall be deemed to constitute financial or investment advice in any way and shall not constitute a regulated activity for the purposes of the Financial Services and Markets Act 2000. This presentation shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity. Should you undertake any investment activity based on information contained herein, you do so entirely at your own risk and SM shall have no liability whatsoever for any loss, damage, costs or expenses incurred or suffered by you as a result. SM does not accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance is not a guide to future returns.

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LATE-CYCLE DYNAMICS AND LOW-RISK PORTFOLIOS With interest rate hikes and ‘quantitative tightening’, the end of the economic cycle draws nearer every day. How do you manage low-risk portfolios and mitigate the ‘nightmare scenario’?

The end of the economic cycle draws nearer every day. Tightening central bank policies and increased volatility have fuelled fears of the next economic contraction. Investors can look to multi-asset solutions and portfolios to establish a lower risk holding during these times. However, we believe that many world economies are still in the mid-expansion phase and that assets still have some potential for further growth. Nonetheless we remain alert to the risks, in our own low-risk funds, of the ‘nightmare scenario’ – where equities and bonds fall simultaneously.

THE ECONOMY WAS FROZEN Though it might not always feel like it, the global economy is heating up. To put this into historical context (see figure 1), since 1945 expansionary periods have typically lasted between two and five years. The stimulus policies of the major central banks can take credit for maintaining the expansion. As one of our LGIM economists likes to analogise, it takes longer to cook a pizza from the freezer than one from the fridge, and following the financial crisis, the economy was well and truly frozen.

CENTRAL BANKS…BOOM, BOOM Asset prices have come a tremendous way over the last 10 years, driven by central bank policy.

Through their quantitative easing (QE) programmes, central banks have bought immense amounts of government securities; pushing down yields and inflating asset returns since the financial crisis. Central bank balance 1 2 ADVISER-HUB.CO.UK

sheets and currency reserves have tripled over the last 10 years as the equivalent $3 out of every $10 of annual global GDP now sits on major central bank balance sheets. With the notable exception of cash, every major asset class has delivered returns consistent with what we might expect from a booming economy over the past decade.

Central bank stimulus, in part, took the form of the re-acceleration of the QE programmes.

For example; 2013 saw the Federal Reserve (Fed) buy more US Treasuries than the

“IT TAKES LONGER TO COOK A PIZZA FROM THE FREEZER THAN ONE FROM THE FRIDGE, AND FOLLOWING THE FINANCIAL CRISIS, THE ECONOMY WAS WELL AND TRULY FROZEN.” government issued that year, meaning investors were forced to buy higher-risk assets to meet their income and return requirements.

When the European Central Bank and the Bank of Japan joined the Fed to purchase government bonds, it actually caused the global net new supply of developed market government bonds to turn negative between 2015 to 2017 (see figure 2).

‘Quantitative tightening,’ the removal of

this massive stimulus, has resulted in the positive net supply of government bonds in the world as of this year.

IN THE CYCLE LANE Given the realities of quantitative tightening, one of the overriding concerns of investors today is the question of where we are in the economic cycle as this will be a key determinant of the market’s direction.

Investors are understandably less willing to take on as much risk if they fear that a downturn is imminent.

But a closer examination of where the major economies are in the cycle reveals that many economies have actually not yet reached mid-late expansion phase.

However, there are other economies we see as being much earlier in the economic cycle.

Brazil and Russia have recently gone through recessions and we would see them as being in the early expansionary phase.

Of course there are more upward pressures on inflation and increased volatility but both of these are not necessarily negative for asset prices. For instance, while the best time to invest in global equities is in the early economic expansionary phase, the second strongest returns are seen during the late expansionary phase.

THE NIGHTMARE SCENARIO The fear many investors have is that of a ‘nightmare scenario’: one where both equities and bonds fall in value simultaneously. This has

Fig 1

MACROECONOMICS

happened in short bursts in the recent past, at the beginning of 2018, and perhaps most notably during the ‘taper tantrum’ of 2013.

The prospect of faster-than-expected Fed rate rises or a faster-than-expected quantitative tightening in the US could have a dual effect of causing yields to rise as the central bank slows its massive bond purchasing programme, and equities to fall as liquidity is removed from the market.

While it’s unlikely that investors could prevent all losses in this scenario, there are methods of constructing a portfolio that can help dampen these effects.

First is to consider the underlying reason which may cause the Fed to quickly hike interest rates – higher-than-expected inflation.

Therefore holding assets whose value is tied to inflation would be beneficial. In our low-risk Multi-Index portfolios’ government bond exposure for example, we currently have half of it allocated to index-linked securities, predominantly in the US that would benefit from that upside inflation, helping to at least lessen some of those falls relative to conventional bonds. Another action investors can take is via the currency exposure. In the funds, we have looked to increase our exposure to the US dollar. If the Fed is increasing interest rates faster than the market expects, the interest rate differential with the rest of the world will grow.

This attracts US dollar investment back to the US and causes the dollar to appreciate in value in doing so. While bond and equities may fall in the nightmare scenario, the one asset class we might expect to do well is the US dollar, hence our overweight position in the lower risk funds in particular.

THE END OF THE CYCLE IS DRAWING NEARER EVERY DAY

Oct 45 - Nov 48 Oct 49 - Jul 53 May 54 - Aug 57 Apr 58 - Apr 60 Feb 61- Dec 69 Nov 70 - Nov 73 Mar 75 - Jan 80

STAYING PREPARED

Jul 80 - Jul 81 Nov 82- Jul 90 Mar 91 - Mar 01 Nov 01 - Dec 07 Jul 09 - ?

0

2

4

6

10

12

Length of expansion (years)

Source: LGIM, Bloomberg LP.

Fig 2

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QUANTITATIVE TIGHTENING IS HERE

In building a global multi-asset portfolio, the key determinant of risk, and therefore returns, is going to be asset allocation. The ability to be active in asset allocation and seek out future winners is more important now than it has ever been. With central banks starting to think about shrinking their balance sheets, the uncertainty from the aftermath of the global financial crisis still has far-reaching effects. Being able to react to a changing environment and dynamically adjust asset allocation will be crucial for multi-asset funds to manage overall risk but also to deliver attractive returns.

Government bond supply, net of asset purchases, $ bn

Find out more about the Multi-Index fund range at www.lgim.com/uk/ad

3,000 2,500 2,000 1,500 1,000 500 0 -500 -1,000 -1,500 2007

2008

2009 USA

2010

2011 Eurozone

2012 UK

2013

2014 Japan

2015 Total

2016

2017

2018

2019

Important Notice This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private investors or any other persons. The value of investments and any income from them may fall as well as rise and investors may get back less than they invest. Legal & General (Unit Trust Managers) Limited. Registered in England and Wales No. 1009418. Registered office: One Coleman Street, London EC2R 5AA. Authorised and regulated by the Financial Conduct Authority.

Source: LGIM, Bloomberg LP. As at 30 April 2018.

ADVISER-HUB.CO.UK 1 3

Spotlight on Income Roadshows 2018

We are delighted to present our CPD accredited roadshows: Spotlight on Income.

In collaboration with James Hay Partnership, Defaqto and LGT Vestra LLP, our half-day events with these leaders of their fields, will cover a comprehensive range of discussions on how customer portfolios can be optimised for income.

Registration is now open. Join us at one of the following locations: Edinburgh: The Balmoral Hotel, 30 October Manchester: The Lowry Hotel, 31 October Harrogate: Rudding Park House & Hotel, 1 November Southampton: DoubleTree by Hilton Hotel, 6 November Birmingham: Hyatt Regency Hotel, 7 November Cardiff: The Principal St David’s Hotel, 8 November

Register at www.lgim.com/uk/ad

This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private investors or any other persons.

The value of investments and any income from them may fall as well as rise and investors may get back less than they invest.

Legal & General (Unit Trust Managers) Limited. Authorised and regulated by the Financial Conduct Authority.

This advertisement is for investment professionals only

A strong core is the product of focus and discipline.

FIDELITY GLOBAL SPECIAL SITUATIONS FUND The outlook for global equity markets remains unclear, so you want to have confidence in the core investments you make. After all, there is always the risk that their value can go down as well as up and clients may get back less than they invest.

So, draw on Jeremy Podger’s years of expertise, exercised in a disciplined approach which identifies opportunities for corporate change, unique businesses and stocks offering exceptional value.

He invests globally, so the value of the fund may be affected by changes in currency exchange rates. The fund also invests in emerging markets which can be more volatile than developed markets, while the use of financial derivatives for investment purposes may expose it to a higher degree of risk and the fund could experience larger-than-average price fluctuations.

Jeremy’s distinctive approach has been honed over three decades – seeing him named Morningstar’s Global Equities Fund Manager of the Year in 2017 and an FE Alpha Manager in 2018. All that hard graft is paying off.

Let’s talk how at professionals.fidelity.co.uk

PAST PERFORMANCE

JEREMY PODGER

8

Aug 13 – Aug 14 – Aug 15 – Aug 16 – Aug 17 – Aug 14 Aug 15 Aug 16 Aug 17 Aug 18 Fidelity Global Special Situations Fund

12.3%

10.0%

25.4%

23.0%

13.0%

MSCI AC World

12.7%

1.2%

26.0%

19.1%

10.5%

Peer Group Average

10.2%

1.0%

21.2%

17.7%

10.6%

Past performance is not a reliable indicator of future returns.

Source: Morningstar, 31 August 2018. Basis: bid-bid, net income reinvested. © 2018 Morningstar, Inc. All rights reserved. Peer group: IA Global Sector.

Copyright – © 2018 Morningstar, Inc. All Rights Reserved. Morningstar Rating™ as of 31.07.2018, in the Global Large-Cap Blend Equity Morningstar Category™. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document and annual and semi-annual reports, free of charge on request by calling 0800 368 1732. Issued by Financial Administration Services Limited and FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbols are trademarks of FIL Limited. UKM0918/CSO8793/22369/1118

Capitalising on change

XXXX

"LOOKING AROUND THE WORLD TODAY, WE ARE SEEING A WIDENING OPPORTUNITY SET WITH AN INTERESTING PIPELINE OF CORPORATE ACTION OPPORTUNITIES. THIS IS ESPECIALLY TRUE IN EUROPE, WHICH HAS TRADITIONALLY BEEN QUITE SLEEPY ON ACTIVISM."

STRONG & STABLE STAPLES?

Stephanie Butcher, European Equities Fund Manager, Invesco Perpetual explains why choosing what not to hold in a portfolio can be as important for long-term returns as choosing what to include.

“FOCUS ON VALUATION IS THE OVER-RIDING PHILOSOPHY THAT INFORMS ALLOCATIONS. TO OUR MINDS OVER-PAYING ANY ASSET,of WHATEVER IdentifyingFOR beneficiaries corporate change such as M&A ITS QUALITY, IS TAKING ON or spin-offs is aADDITIONAL key part ofRISK.” Portfolio Manager Jeremy

Podger’s three-pronged investment approach for the Fidelity Global Special Situations Fund. Here he reviews a widening opportunity set of corporate actions across global markets and reveals how this is creating overlooked potential at a time when others are focused on macro factors.

1 6 ADVISER-HUB.CO.UK

M&A

Turning the spotlight on companies that have undergone meaningful change can throw up some great investment opportunities. The market is often slow to realise the benefits of major structural changes such as spin-offs, M&A, postbankruptcy re-listings and IPOs. Many investors prefer to watch and wait until the perceived risk of the transition has passed, so any value that is created by big structural moves can take a while to be reflected in share prices. We operate somewhat differently, specifically homing in on such opportunities.

In fact, corporate change is one of the three key categories of investment in the Fidelity Global Special Situations Fund and has been a strong contributor to the fund’s performance. We tend to define such change relatively broadly, looking for a potential impact of over 20% of a business in revenue terms, and an anticipated revaluation of 15% or more over a 12-18 month period.

Our efforts are always to use fundamental research to identify the ‘gems’ early on, before they attract a new investor base waiting for confirmation that the change is proving successful. Such businesses tend to move from a situation where a high implied discount rate is replaced by one that is more in-line with the peer group in analyst models. If our analysis is correct, many such stocks also offer limited downside, with managements focused on avoiding an alienation of existing investors.

A DIVERSE OPPORTUNITY SET Looking around the world today, we are seeing a widening opportunity set with an interesting pipeline of corporate action opportunities. This is especially true in Europe, which has traditionally been quite sleepy on activism, but has seen a spurt of spin-off activity and restructurings recently. This follows heightened interest from US activists, such as Elliott Management, that are finding relatively slimmer pickings at home.

Spin-offs can often represent good buying opportunities for both fundamental and technical reasons. Fundamentally, change that allows for the business to become more focused, more nimble, attract the right talent and create better incentivisation and currency for M&A, can create value.

Technically, such stocks are often attractively priced as many holders are forced to sell because of size, country limits, liquidity and because such names may fall out of the index.

Our recent participation in the spin IPO of Siemens Healthineers, which has a leading position in imaging and diagnostics, is a good example of profitable change. A belief that the new structure would bring more transparency and help accelerate growth from the new Atellica platform has paid off so far.

More broadly though, the IPO market has been relatively subdued recently, with the exception of China, where retail demand has created somewhat bubble-like conditions.

Prominent planned IPOs of large new economy names such as Huawei, Didi Chuxing, Ant Financial, Tencent Music Entertainment will continue to dominate headlines but conditions seem to be cooling off at the margin now.

GETTING AN EDGE We have been spending quite a lot of time looking at opportunities in this arena, where we have the advantage of long-term company relationships and access starting from a pre-IPO/roadshow stage. Many investors in the marketplace tend to avoid such stocks, given limited data availability and asymmetric information (versus insiders). Our efforts are to use research to identify the winners of the future and, equally importantly, to avoid the small group of stocks that tend to underperform dramatically and give IPOs a bad reputation.

We also have a continued focus on M&A activity, where we have found that the combination of synergy benefits in combined cost bases and financing cost advantages can be powerfully value-enhancing.

Recently the fund has benefited from its holdings in Andeavor (itself formed from the merger of Western Refining and Tesoro), which has received bid interest from Marathon Petroleum, and Twenty-first Century Fox, which has been the subject of a much-publicised bidding war between Disney and Comcast. New additions include the likes of Worldpay formed from the merger of Vantiv and Worldpay to create a truly global payment solutions business, with a leading position in the US, Europe and global e-commerce.

Our research efforts are focused on differentiating between deals that are value enhancing rather than value disruptive, particularly as deal sizes get larger and more industry defining, and we get closer to late cycle, with more stretched balance sheets and rising interest rates implying higher financing costs.

In all of this, one of our key advantages remains the dedicated analysts within Fidelity who monitor the pipeline of corporate change activity in real time and have developed good relationships with special situations desks across the industry, allowing us to form views in a time-sensitive manner.

At a time when most of the market place is focused on macro and geopolitical risk, they allow us to identify true corporate transformation that can bring exceptional performance almost regardless of market conditions.

ABOUT THE MANAGER Jeremy Podger joined Fidelity in February 2012 and manages the Fidelity Global Special Situations Fund and the Fidelity World Fund (SICAV). He is an experienced investor and has been managing global equity mandates for more than 20 years. His dedication and expertise has led him to be named Morningstar’s Global Equities Fund Manager of the Year in 2017 and an FE Alpha Manager in 2018.

Prior to Fidelity, Jeremy was Head of Global Equities at Threadneedle, a fund manager at Investec for seven years and a global and pan-European fund manager for Saudi International Bank. Jeremy has a degree from Cambridge University and an MBA from London Business School.

Important information: The value of investments can go down as well as up, so your clients may not get back what they invest. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. The Fidelity Global Special Situations Fund uses financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Subject to currency fluctuations. Investments in small and emerging markets can also be more volatile than other more developed markets. Reference to specific securities should not be interpreted as a recommendation to buy or sell these securities, but are for illustration purposes only. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document, current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Issued Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.

UKM0918/22453/SSO/NA ADVISER-HUB.CO.UK 1 7

MONETARY POLICY

EVOLUTION NOT REVOLUTION A changing monetary policy environment requires a change in approach on fixed income, says Joubeen Hurren, Portfolio Manager on the Aviva Investors Multi-Strategy (AIMS) Fixed Income fund.

Historically, investors have sought out fixed income for three main reasons: to generate income, to reduce risk and to increase diversification. It is difficult to argue for those reasons today, says Joubeen Hurren, portfolio manager on the Aviva Investors Multi-Strategy (AIMS) Fixed Income fund. Investors may need to rethink their approach as the wave of liquidity that has pushed yields lower and supported bond prices is gradually withdrawn.

Hurren points out that the duration of bond indices has extended dramatically as government and corporate borrowers have issued longer-dated bonds. As such, interest rate sensitivity is far greater. At the same time, the starting yield of fixed income is now very low. There is no coupon to act as a buffer. The correlation between bond and equity markets has also increased with the ebb and flow of global monetary policy. Consequently, there is a significant risk that bonds and equities sell off at the same time. He concludes: “All the things have made fixed 1 8 ADVISER-HUB.CO.UK

income a great asset class in recent years don’t stand up today.”

The reversal in global monetary policy has happened steadily, which means bond markets have not yet been subject to any significant shocks.

Nevertheless, they are experiencing greater volatility and it has become more difficult to generate returns. The US treasury market, for example, would have delivered little for investors over the past two years. Hurren believes today’s market calls for a more flexible approach that can seek out value across fixed income markets.

There are three funds in the group’s multi-strategy range, including its flagship AIMS Target Return fund. The fixed income fund aims to deliver cash + 3% from a portfolio of 25-35 fixed income strategies. In a similar way to the Target Return fund, idea generation is built from the Aviva Investors ‘engine’. A central house view is agreed, and the managers construct a portfolio from that. Each portfolio reflects these views in the best way given its parameters and has slightly different challenges.

MONETARY POLICY

Hurren explains: “Sixty investment professionals feed into the process from across the business. I started out as a specialist and became a generalist very quickly. We will draw ideas from across areas as diverse as emerging markets and foreign exchange. We take highquality ideas and put them together in a way that replicates our house view. We are agnostic on the best tool to achieve those aims.”

The AIMS Fixed Income fund has three types of strategy: market strategies, which harness the risk premia of traditional fixed income asset classes; opportunistic strategies, which aim to profit from market mispricings; and risk-reducing strategies, which are designed to preserve capital in times of market stress. This latter category is important, with the team spending as much time thinking about the risk scenarios to the house view: what signals they are looking for that something might have changed? What strategies can they put in place to prevent problems?

The fund can go long and short. It is a capital return fund rather than an income fund, but the key point is that it doesn’t rely on the overall direction of the market to drive returns.

It aims to fulfil its return target whether or not fixed income markets make progress. While some of the ideas in the fund will cross over with those in the Target Return fund, it will implement strategies that do not appear elsewhere.

The approach to fixed income is necessarily different to equities. Hurren says: “Equities have more of an observable risk premia. When we try and apply the same analysis to credit markets, returns are not only lower on an absolute basis, but they show much greater asymmetry. Losses can, in some instances, be the same as if they are invested in equities, but the upside is more

limited. As such, there is a different distribution of returns.”

How does this work in practice? Hurren says the fund has been positioned for reflation for around two years now: “Markets have been under-appreciating the extent to which inflation moves higher. We are going to be in a world of positive growth. As such, we are trying to construct a portfolio that does well in an inflationary environment. Equities are good for that, but it doesn’t follow that bonds and credit will do well. It is whether you get paid back, rather than earnings. As such, we’re expressing this view by being short short-dated developed market bonds, while running with a short-duration position in US fixed income. We believe this is better than running a long position in US credit, where there is still a lot of leverage in the system.”

“We try to focus on a 1-3 year time horizon.

If a strategy is not responding in the way we expect, that would be a signal to review the position. We try and identify what is ‘noise’ and to identify risks ahead of time, while keeping an eye on the fundamentals.”

Are the group’s clients worried about fixed income markets? Hurren says that the vast majority are still reasonably comfortable with fixed income investment.

However, he adds: “Fixed income markets haven’t been tested properly yet because a lot of central banks are still doing quantitative easing, but at the same time investors haven’t made money on treasuries since 2016. It is a slow-moving target.”

He believes investors increasingly recognise that we are in a more inflationary environment and that their allocation should evolve through time: “You need a forward-looking opportunity set. It’s not revolution, but evolution.”

“MARKETS HAVE BEEN UNDER-APPRECIATING THE EXTENT TO WHICH INFLATION HAS THE POTENTIAL TO MOVE HIGHER AND THE STRENGTH OF GLOBAL GROWTH. AS SUCH WE ARE TRYING TO CONSTRUCT A PORTFOLIO THAT DOES WELL IN AN INFLATIONARY ENVIRONMENT.”

ADVISER-HUB.CO.UK 1 9

Formulated for resilience Aviva Investors Multi-Strategy (AIMS) Fixed Income Fund

• Controlled: targeting long-term growth with lower volatility than traditional fixed income approaches • Diversified: utilising the full fixed income universe to capture uncorrelated sources of return • Robust: focusing on capital preservation in all market conditions Find out how the AIMS Fixed Income Fund could build resilience into investment portfolios, even in today’s uncertain world. avivainvestors.com/aimsfixedincome-uk The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. Convertible bonds can earn less income than comparable debt securities and less growth than comparable equity securities, and carry a high level of risk. The Fund uses derivatives, these can be complex and highly volatile. Derivatives may not perform as expected meaning the Fund may suffer significant losses. Certain assets held in the Fund could, be hard to value or to sell at a desired time or at a price considered to be fair (especially in large quantities), and as a result their prices could be very volatile.

For professional clients and advisers only. Not to be distributed to or relied on by retail clients. Ratings are no guarantee of future performance and can change.

Aviva Investors Multi-Strategy Fixed Income Fund is a sub-fund of Aviva Investors SICAV I; an open-ended investment company incorporated as a Société d’Investissement à Capital Variable in Luxembourg. It is authorised by the Commission de Surveillance du Secteur Financier (CSSF) and qualifies as an Undertaking for Collective Investment in Transferable Securities (UCITS) under Part I of the law of 17 December 2010 relating to undertakings for collective investment. The Management Company is Aviva Investors Luxembourg S.A. The Investment Manager is Aviva Investors Global Services Limited, regulated and authorised by the Financial Conduct Authority.

The Prospectus and KIID, are available, together with the annual and semi-annual reports and financial statements of the SICAV, free of charge from Aviva Investors Luxembourg S.A., 2 rue du Fort Bourbon 1st Floor.L-1249 Luxembourg, Grand Duchy of Luxembourg R.C.S. Luxembourg B25708, or online at www.avivainvestors.com.

Issued by Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: St. Helen’s, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority Firm Reference 119310.

J39437 RA18/0921/31122018

39437_Aims_Fixed_income_Ad_V2.indd 1

19/09/2018 16:28

EXPERTLY MIXED

For promotional purposes

Janus Henderson Multi-Asset Core Income Risk-targeted Lower cost Regular and attractive income Through a top-down, bottom-up, active investment approach, the funds are expertly mixed to provide investors with diversification across the full spectrum of asset classes.

0.75% OCF* Janus Henderson fund

% Yield†

Janus Henderson Core 3 Income Fund

3.6

Janus Henderson Core 4 Income Fund

4.2

Janus Henderson Core 5 Income Fund

4.3

Janus Henderson Core 6 Income & Growth Fund

3.8

Historical 12 month yields as at 31 August 2018.

Based on ‘I Inc’ share class. Source: Janus Henderson Investors.

†

janushenderson.com/core

Source: Janus Henderson Investors as at 31 August 2018.

For professional advisers only. Investments can fall as well as rise. Past performance is not a guide to future performance. Nothing in this advert should be construed as advice. This is not a recommendation to sell or purchase any investment. Please read all scheme documents before investing. *Ongoing charges figure may vary over time.

Yield may vary and is not guaranteed. The Janus Henderson Multi-Asset Core Income funds should be bought in conjunction with an attitude to risk tool as part of the financial advice process. These funds are, therefore, designed to be bought by advised clients only.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355) and Henderson Investment Funds Limited (reg. no. 2678531) (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. © 2018, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC.

X XI VXIXD E N D I N V E S T I N G D FOR PROFESSIONAL INVESTORS. FOR PROMOTIONAL PURPOSES

STRONG DIVIDENDS: & Unloved, STABLE STAPLES? out of favour and compelling!

Stephanie Butcher, European Equities Fund Manager, Invesco Perpetual explains why choosing what not to hold in a portfolio can be as important for long-term returns as choosing what to include.

“FOCUS ON VALUATION IS THE OVER-RIDING PHILOSOPHY THAT INFORMS ALLOCATIONS. TO OUR MINDS OVER-PAYING FOR ANY ASSET, WHATEVER ITS Portfolio QUALITY, ISManager TAKING ONwithin Janus Nick Watson, ADDITIONAL RISK.” Team, explains the Henderson’s UK-based Multi-Asset

rationale behind investing for income in reassuringly boring and out-of-favour household names.

2 2 ADVISER-HUB.CO.UK

DIVIDEND INVESTING

Markets are experiencing a more conventional period of volatility in 2018, as the echoes of the Great Financial Crisis fade and the quantitative easing (QE) driven benign investment conditions of the past years draw to a close.

One of the central dynamics of equity market performance in 2018 has been a continued preference for glamorous technology and growth stocks, as investors extrapolate recent corporate performance and share price returns into the future. In stark contrast, high-quality and mature dividend paying companies in less exotic business sectors have been punished by the market, despite relatively attractive valuations and stable business models.

move through this new post-QE environment of increased volatility and lower returns, capturing these sustainable dividends and benefiting from the compounding of income over the long run can be a significant driver of portfolio returns in more choppy markets.

Short-term volatility masking compelling yields This is best illustrated in the UK. The FTSE 100 itself suffered a 10% drawdown in the first quarter, to the point that the index is currently yielding around 4%. When we delve a bit deeper into the index, this price weakness came from companies as diverse as WPP, National Grid, BT, HSBC and Imperial Tobacco (see chart below). This short-term volatility has presented great entry points for investors as these household names are now offering some very compelling yields.

Clearly a yield of 7% is compelling for an income-focused investor, particularly when one considers the level of yields available from cash (0.75% the Bank of England base rate*) or bonds (1.4% 10 year UK gilt*).

Important Information This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution. Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no.

962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Š 2018, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC.

Capturing attractive dividends and capital growth It is worth observing that yields at these levels do not tend to persist. The yield may rise through short-term price weakness or down to fundamental concerns around the security of the dividend. If the price weakness is driven by short-term news flow and the corporate outlook remains sound, savvy investors who buy into these stocks can benefit from the attractive dividends, and also capital growth, as market sentiment improves and the share price recovers. This is a great environment for the active stock picker, as more volatility and dispersion within markets provides greater insight and scope for avoiding losers and backing winners with compelling total return potential.

For the Multi-Asset Core Income Fund range, we have taken advantage of this short-term weakness in high-quality dividend paying stocks and added to our exposures. As we

*Source: Bloomberg, as at 2 August 2018

For more information on our Multi-Asset Core Income range contact us on 0207 818 2839, email us on: sales.support@janushenderson.com or visit our website janushenderson.com/core

DIVIDEND YIELD INDICATIONS FOR FTSE 100 ENTITIES WITH THE BIGGEST DIP IN 2018

FTSE 100 Index

4.3%

Indicated dividend yield Lloyds Banking Group

5.4% 7.6%

Biggest dip in 2018

Rio Tinto

5.5%

BP

5.4%

HSBC Holdings

5.4%

National Grid

5.7%

WPP

4.9%

Glencore

5.0%

BT Group

6.8% 7.7% 6.5% 4.9%

-25%

-20%

-15%

-10%

-5%

0%

5%

Vodafone Imperial Brands British American Tobacco

10%

Source: Bloomberg, as at June 2018 Companies in FTSE 100 Index that are over ÂŁ10 billion in size, have a prospective yield greater than 4% and have suffered a dip in their share price of over 10% since the end of 2017. Yields may vary and are not guaranteed.

Royal Dutch Shell

5.3%

-30%

SSE

ADVISER-HUB.CO.UK 2 3

MULTI-ASSET

WHY MULTI ASSET FOR INCOME? Generating a sustainable income has been a challenge since the credit crisis. A multi-asset approach can help build a stable income, with better diversification, say Georgina Taylor and Sebastian Mackay, Multi Asset Fund Managers, Invesco Henley Investment Centre.

WHY MULTI ASSET FOR INCOME? Income-seeking investors have faced headwinds in the aftermath of the global financial crisis. With interest rates trapped at historic lows, savers are receiving a pitiful rate of return. Likewise, yields gained from bonds are near record lows, and the current market environment also provides an additional challenge to those who may wish to hold bonds for income: interest rates are likely to go only one way from here. Should interest rates indeed rise, bond holders could see their capital diminish.

This comes at a time when demand for income has been rising. A large proportion of the UK population requires income in one form or another.

This has been accentuated by the Baby Boomer generation edging towards retirement age. At the same time, a change in UK regulations introduced in April 2015 gave people greater access to their pensions, presenting new choices in how to manage their money.

What investors typically seek are varying degrees of growth, income and risk from their investments. But delivering a good blend of capital growth and income whilst also diversifying risk can be challenging. Over the past 10 years, not many equity markets have managed to achieve a total return in excess of cash1 +5% – the amount that has typically represented the equity risk premium. Likewise, neither bonds nor equities have consistently delivered an income above UK cash rates over the past 30 years (as shown in Figure 1), which puts ‘real’ income levels under pressure.

Traditional ways of achieving diversification, such as combining bonds and equities into a single portfolio, also no longer provide sufficient diversification. Recent years have shown that bonds and equities are not always negatively correlated.

2 4 ADVISER-HUB.CO.UK

At Invesco Perpetual, we believe the solution to overcoming these investment challenges lies in the ability to generate a reasonable income without embedding excessive capital risk within a portfolio. This belief formed the foundation for the Invesco Perpetual Global Targeted Income strategy.

The strategy aims to deliver a gross income of UK 3-month LIBOR + 3.5%2 p.a. whilst seeking to preserve capital3 over a rolling 3-year period4 and aims to achieve this with less than half the volatility of global equities5 over the same time frame.

In our view, keeping a keen eye on capital preservation is important.

Income-seeking portfolios can be prone to capital erosion – primarily due to two issues: excessive risk-taking in the hunt for yield and the redemption of units to generate income, which could deplete capital through time.

The chart below highlights the first issue. It shows that the highestyielding assets globally are also the higher-risk areas of fixed income. To achieve average cash rates relative to history, an investor would need to look at high yield corporate bonds just to match the income generated from a bank account in the past.

The second issue can arise when investors buy a growth fund rather than an income fund, and then cancel units as income is required. This exposes the investor to both market and fund timing issues. Should both a growth fund and an income fund suffer a short-term set back, an investor of a growth fund (who cancelled units to receive income) will not be able to participate fully in a subsequent rebound. Conversely, the investor who invested in an income strategy can participate more in the upside because no units have been cancelled.

MULTI-ASSET

Fig 1

A LARGE PROPORTION OF THE UK POPULATION REQUIRES INCOME IN ONE FORM OR ANOTHER. THIS HAS BEEN ACCENTUATED BY THE BABY BOOMER GENERATION EDGING TOWARDS RETIREMENT AGE.

Income generated from equities and bonds have been inconsistent

% of time since 1980 that yields have been greater than UK 3-month interest rates UK 10-year Government bonds

US 10-year Government bonds

FTSE All Share

MSCI World

% 70 60

INVESTMENT RISKS

50

The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.

The strategy uses derivatives (complex instruments) for investment purposes, which may result in a portfolio being significantly leveraged and may result in large fluctuations in value. The strategy may hold debt instruments which are of lower credit quality which may result in large fluctuations in value.

40 30 20 10 0 Source: Datastream as at 30 April 2018

Fig 2 Yield as of 31 March 2018

Target yield of the strategy

Average yield since 1998

Average 3-month LIBOR since 1998

UK 3-month LIBOR

UK 10 year Gilts

UK BBB corporate bonds

Euro high yield corporate bonds

US high yield corporate bonds 10 8

Important information This article of for Professional Clients only and is not for consumer use. All data is as at 30.04.2018 and sourced from Invesco Perpetual unless otherwise stated. Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities. Invesco Perpetual is a business name of Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.

6 4 2 0 Source: Bloomberg as at 31 March 2018

1. Cash is defined as 3-month LIBOR 2. Before deduction of corporate tax 3. Net of fees 4. We cannot guarantee that the strategy will achieve its income or capital preservation goals; your clients could get back more or less than the target income and they may not get back the amount they invest 5. MSCI World

ADVISER-HUB.CO.UK 2 5

We don’t just invest money for our clients – we invest the hours, months and years of hard work it has taken to earn it.

Advert Placement It’s not just about investing in one of our funds; it’s about investing in a belief that life is what you make it.

Each of us at Invesco Perpetual shares that belief and that’s what drives us – we are fully focused on delivering what truly matters to our clients – their objectives, their dreams.

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Find out more at invescoperpetual.co.uk Follow us @InvescoUK

Mr Hayles Furniture maker for 27 years

Invesco Perpetual is a business name of Invesco Asset Management Limited. Authorised and regulated by the Financial Conduct Authority.

ASIA

Richard Jones First State Stewart Asia

STILL IN BED WITH AN ELEPHANT RICHARD JONES, PORTFOLIO MANAGER, FIRST STATE STEWART ASIA, DISCUSSES WHY INVESTING IN CHINA CAN BE BEWILDERING.

“Failure is so important. We speak about success all the time. It is the ability to resist failure or use failure that often leads to greater success.” J.K. Rowling

our portfolio positioning. If normal service resumes, we should continue to produce respectable absolute returns, while a more dramatic reversal would probably flatter our relative performance numbers.

With history supposedly on our side, we hope to use ongoing market weakness to buy into higher growth companies.

That remains the key challenge. In the meantime, we remind ourselves that those muggles declaring victory, after but a wrinkle in the tide of returns, are just as likely to be consumed

by Death Eaters** as saved by compounding-magic.

There have been times, over the last couple of years, when we have felt like a complete muggle*.

Investing in this part of the world has long been all about China. We have remarked before that we are all in bed with an increasingly irritable elephant. It didn’t used to be like this.

India, being mainly a domestic and consumer-driven economy, offers a ready alternative. But, the valuations there *From J.K. Rowling’s Harry Potter series, a muggle is an ordinary human being who lacks any are already rather high. magical ability.

China’s financial system often reminds us of **From J.K. Rowling’s Harry Potter series, Death Eaters are a group of wizards and that famous Churchill aphorism about Russia: witches who practise dark magic and seek to eliminate muggles and muggle-borns (magical folk with human parents) from the community “These China scares come “It is a riddle, wrapped in a mystery, inside along fairly regularly, but one an enigma.” There are few signposts as to day we may indeed have a Important Information where we are going. Like America, China is more significant and longThis document is not a financial promotion and has big enough, such that you can always find lasting reversal. Maybe even been prepared for general information purposes only an anecdote or indeed even real evidence now? Nobody knows, but it and the views expressed are those of the writer and to support whatever opinion you care to would hardly be surprising, may change over time. Unless otherwise stated, the advance. either hereabouts or indeed globally.” source of information contained in this document is First These China scares come along fairly State Investments and is believed to be reliable and regularly, but one day we may indeed have a accurate. References to “we” or “us” are references to First more significant and long-lasting reversal. Maybe State Investments. First State Investments recommends that even now? Nobody knows, but it would hardly be investors seek independent financial and professional advice prior to making surprising, either hereabouts or indeed globally. There is very investment decisions. In the United Kingdom, this document is issued by First little margin of safety in the system, whether you consider State Investments (UK) Limited which is authorised and regulated in the UK the world on a top-down or on a bottom-up basis. by the Financial Conduct Authority (registration number 143359).

The past few years have been rather benign, Registered office: Finsbury Circus House, 15 Finsbury Circus, London, EC2M markets-wise, which is all the more surprising because the 7EB, number 2294743. Outside the UK within the EEA, this document is real world has become ever more fraught. We have become issued by First State Investments International Limited which is authorised immune to unaccustomed and unusual things, as well as and regulated in the UK by the Financial Conduct Authority (registration perhaps anesthetised to the risks, so often have we charged number 122512). Registered office 23 St. Andrew Square, Edinburgh, EH2 onward through myriad false alarms.

1BB number SC079063.

Only time will tell, but today we are comfortable with

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LATIN AMERICA

BEYOND POLITICS: WHAT’S NEXT FOR LATIN AMERICA? OCTOBER SEES BRAZILIANS GO TO THE POLLS TO ELECT THEIR NEXT PRESIDENT. They will be hoping for better luck than with their previous House. The failure of the US government to clarify NAFTA has two incumbents – Dilma Rousseff, who was impeached for been an issue but may be about to be resolved. Smith says: “The breaking Brazil’s budget laws, and Michel Temer, who has been signing of the second NAFTA agreement is important. Early on, charged with accepting bribes. However, there is more at stake the Trump team realised that in targeting Mexico, they had just than simply finding a leader immune to corruption, says Thomas made Mexican exports 20% more competitive because of the Smith, manager of the Neptune Latin America Fund. decline in the peso. The new NAFTA is not very different from the The election has a significant range of potential outcomes old NAFTA and it probably needed updating. This visibility is very and remains one of the most uncertain in recent memory. There important for markets and could restart the investment cycle.” are a number of candidates, from pro-business, pro-reform centre Smith believes the leftist inclinations of ‘AMLO’ (Andrés right – which would be taken very well by the market – to Manuel López Obrador) will not derail this: “He was an outsider extreme left. The former wants to increase productivity, increase and initially took a hard left positioning, but he was fighting growth, and stabilise debt to GDP. At the opposite end is the against well-established political parties and needed to be radical.

Workers’ Party (PT) with Fernando Haddad its choice for However, he moved to the centre to become electable.” presidential candidate.

He showed himself a pragmatist as head of government in The most important economic battle ground is over Mexico City. pension reform. Smith says: “The country still needs The final risk for the region is contagion from pension reform to stabilise debt to GDP. This is Argentina. It is not important from an equity market “Many emerging markets priority number one.” The centre right understands perspective - it is not in the MSCI Latin American have reduced their its importance. The left also recognises the index – but there may be other channels. Smith reliance on external problem but may water down says: “President Macri has made excellent funding. Brazil is the any reforms. progress. Given the distortions inherited from the stand-out example and is It is easy to forget how far Brazil has come. previous government, Argentina was vulnerable to now in a much stronger Smith says: “Many emerging markets have reduced a sharp tightening in global financial conditions, position.” their reliance on external funding. Brazil is the but the IMF deal shows the level of international stand-out example and is now in a much stronger support for Macri’s policies. Part of the IMF’s position. Previously it had poor economic policy conditions are a sharper fiscal consolidation and that may management, but it has implemented orthodox economic policy drive the economy into recession later next year. The and structural reforms. The problem is that Temer, who opportunities are there, but the transition could be volatile and implemented the reforms, has run out of political capital to complex. It’s not out of the woods, but the central bank has implement further reforms. acted quickly and decisively. We don’t see material contagion.

“Brazil has emerged from one of the deepest recessions in There are some Chilean companies that are vulnerable and there 100 years. The economic backdrop was quite bleak, but the is a perception problem.” economy is now on course to expand 2% this year and 3% next For stock markets, Smith believes that many of these year. Inflation is very low and interest rates are being cut to problems are priced in to current valuations, which look cheap by stimulate economic recovery. This is feeding through into the historic standards. He is using the volatility to top up on earnings of individual companies. There is still plenty of slack in preferred ideas, believing that selling has been indiscriminate in the economy and growth shouldn’t stoke inflation.” some cases and certain companies have been unfairly targeted.

Mexico has had its elections but faces a different set of There is undoubtedly short-term noise in Latin America, but the problems. In Brazil, the direct impact of President Trump’s tariff is future is looking brighter. limited. However, for Mexico, the US forms 80% of its export market and it has suffered under Trump’s tenure at the White Thomas Smith, Manager of the Neptune Latin American Fund 2 8 ADVISER-HUB.CO.UK

Advert Placement

MACRO INSIGHT

TEN EVENTS THAT MATTER TO INVESTORS IN THE FINAL QUARTER OF 2018

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In the final quarter of 2018, we look at the key events on the agenda for investors.

As many northern hemisphere investors get their feet back under their desks after the summer break, we look at the key events and themes likely to be on the agenda for the fourth quarter of 2018.

1) GLOBAL TRADE NEGOTIATIONS The US and China held fresh, and largely fruitless, trade talks in August. The economics team here at Schroders believes that the dispute is likely to be prolonged, and persist beyond the US midterm elections in November.

The US implemented tariffs on $50 billion of Chinese imports in two stages in July and August, and China responded with duties of equal measure.

The US Trade Representative, whose role includes managing US trade relations and negotiating with other countries, recently concluded its hearings on a proposed $200 billion of Chinese goods on which it could apply 25% tariffs. This paves the way for further tit-for-tat tariffs, with Beijing having announced a list of $60 billion in US goods that it would target in retaliation.

There is a limit in the extent to which China could implement reciprocal or retaliatory tariffs, however.

This is because China imports less from the US than vice versa. One alternative strategy for Beijing could be to implement non-tariff barriers for US companies which operate in the country. This is an approach which it has previously used against Korean and Japanese companies.

2) BREXIT TALKS The UK government published in July its long-awaited white paper, outlining plans for exiting the European Union (EU). Since then it has started to outline the measures that it is taking to prepare for the possibility of a “no deal” Brexit. The House of Commons returned from its summer recess on 4 September and then the political party conference season got under way, running from 15 September to 3 October.

EU leaders meanwhile met to discuss Brexit on 20 September. The formal EU summit on 17-18 October is seen as the deadline for a withdrawal agreement. This is to allow sufficient time for both the UK and European 3 0 ADVISER-HUB.CO.UK

parliaments to approve it. Should a deal not be reached in October, the EU has indicated that November is the latest month in which a deal could be agreed. However, another EU summit is timetabled for 13-14 December which on paper would appear to be the final chance for a deal to be agreed. Much uncertainty therefore remains over the timing and nature of any final agreement, or indeed whether an agreement will be reached at all.

View from a fund manager - Alex Breese, UK Equities: “Despite the uncertainties created by Brexit, quantitative tightening and fears of a trade war, at the sector and stock level we continue to identify pockets of value within the UK market. We continue to focus on these lowly-valued areas in the market where we feel there is potential for positive change in the years ahead.”

3) FEDERAL RESERVE POLICY The US Federal Reserve’s (Fed) interest rate setting committee, known as the Federal Open Market Committee, is scheduled to convene on 25/26 September, 31 October, 7/8 November and 18/19 December. Current expectations are for a 25 basis points (i.e. 0.25%) increase in policy rates at each of its September and December meetings. However, the focus is shifting to 2019 and at what level the Fed decides to pause.

Beyond the two additional rate rises expected this year, Schroders’ economics team anticipates that the Fed will increase US interest rates on two more occasions in the first half of 2019, peaking at a level of 3%. This is because it believes the effects of previous interest rate rises are lagged and, combined with a fading of President Trump’s increased spending measures, may slow the economy.

The economist’s view – Keith Wade, Chief Economist and Strategist: “The Fed is already indicating that it is thinking about how much further interest rates need to rise. Once the peak is in sight markets could shift significantly as the period of dollar strength will draw to a close.

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MACRO INSIGHT

“In this respect it is possible that the Fed will have finished raising rates before the European Central Bank and Bank of Japan have even started.”

4) JAPAN’S LDP HELD LEADERSHIP ELECTION

“THE FED IS ALREADY INDICATING THAT IT IS THINKING ABOUT HOW MUCH FURTHER INTEREST RATES NEED TO RISE. ONCE THE PEAK IS IN SIGHT MARKETS COULD SHIFT SIGNIFICANTLY AS THE PERIOD OF DOLLAR STRENGTH WILL DRAW TO A CLOSE”

BREXIT TALKS

Prime Minister Abe was re-elected leader of the Liberal Democratic Party in September's leadership election.

This is his third straight term, making him Japan’s longest serving prime minister. He was expected to comfortably defeat his only challenger, former defence minister Shigeru Ishiba.

View from a fund manager – Andrew Rose, Japanese Equities: "With a renewed period of policy stability likely after the election, attention will soon focus on the next increase in the consumption tax, scheduled for October 2019. The final decision is likely to be taken around the end of 2018, allowing time for the necessary system updates.

“Despite short-term variations, Japan’s economy still appears to be heading out of a deflationary environment. Wages are showing some signs of responding to the tightness of the labour market and there have been marginal increases in inflation expectations. Although the most recent quarterly results season was good rather than spectacular, the prospect remains for a better revisions cycle in the second half of the fiscal year.”

5) ITALIAN BUDGET ANNOUNCEMENT JAPAN LEADE ’S LDP HELD RSHIP ELECT ION

BRAZIL GENERAL ELECTIONS

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Italy’s new government put forward its budget proposals in September. Although a small stimulus was expected to be the most likely outcome, Italy's bold spending plans raised the possibility of a dispute with the EU. This is because its budgetary policy requires member states to avoid excessive government deficits, defined as a deficit in excess of 3%. This is a situation where total government expenditure exceeds total receipts, excluding borrowing.

6) BRAZIL GENERAL ELECTIONS It has been a busy few years in Brazilian politics, following the impeachment of second term president Dilma Rousseff in 2016. Former vice-president Michel Temer took the reins but despite some initial success in driving through reforms, these have stalled amid allegations of corruption. President Temer’s approval ratings are in the single digits and he did not run for the office.

The most popular candidate, former president Luiz.

Inácio Lula da Silva of the Workers’ Party, was prohibited from standing due to his imprisonment for fraud and corruption. Despite being registered as a candidate, he was barred from running by the country’s highest electoral court.

A two-round system is used to elect a president, unless a single candidate receives more than 50% share of the vote in the first round. Right-wing candidate Jair Bolsonaro won the first round of the election but failed to achieve the 50% of votes. He will face left-wing candidate Fernando Haddad in the second round on 28 October.

7) US SECOND STAGE SANCTIONS ON IRAN TAKE EFFECT – 4 NOVEMBER

Iran’s government, as well as trading in commodities such as gold, steel and coal.

The sanctions that the US plans to impose from 4 November include the prohibition of petroleumrelated transactions with the National Oil Company among others. Sanctions will also be re-imposed on the port operation and the shipping sector. These measures apply to associated services and businesses engaging with related industries. While many other factors remain uncertain, not least wider geopolitical developments, the impact of these measures would suggest some support to crude oil prices.

8) US MIDTERM ELECTIONS – 6 NOVEMBER In November, voters across the US get their first opportunity to show their opinion on President Trump’s administration since his election in 2016.

Midterm elections see all of the 435 House of Representatives seats and 34 of the 100 Senate seats come up for election. The president’s Republican Party currently hold a majority in both houses of government but these elections have historically been negative for the ruling president’s party. Nonetheless, the task ahead for the Democrats is not easy, especially in the Senate.

In the House of Representatives, the Democrats would need to gain 24 seats to gain control. In the Senate however, 26 of the 34 seats up for election are currently held by the Democratic Party, suggesting that it may be easier for the Republican Party to maintain control.

9) EUROPEAN CENTRAL BANK POLICY The European Central Bank’s rate setting committee, the Governing Council, is scheduled to meet on 13 September, 25 October and 13 December. It has previously announced plans to wind down its quantitative easing programme by the end of December. It has also provided guidance for interest rates to remain on hold until the third quarter of 2019, unless there is a major change in economic conditions.

10) BANK OF JAPAN POLICY Japan’s central bank will hold interest rate policy meetings on 18/19 September, 30/31 October and 19/20 December. Owing to lower-than-expected inflation, it recently made small tweaks to its policy, contrary to previous speculation that it could effectively tighten policy (i.e. remove some of its stimulus measures). It also stated that the current low rate policy would be maintained for “an extended period of time”, meaning no change to policy is currently expected in the next few months.

Andrew Rymer, Schroders Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. This marketing material is for professional investors or advisers only. Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Schroder Unit Trusts Limited is an authorised corporate director, authorised unit trust manager and an ISA plan manager, and is authorised and regulated by the Financial Conduct Authority.

Following President Trump’s decision to withdraw the US from the 2015 Joint Co-operative Plan of Action (JCPOA) back in May, the US is re-imposing sanctions on Iran in two stages. The first round took effect on 6 August and included measures which prohibit the purchase or acquisition of US dollar banknotes by ADVISER-HUB.CO.UK 3 1

Emerging Markets Employing 40% of the World’s AI Engineers

AI, one of the seven “Agents of Change” prevalent in emerging markets.

Deep social and demographic change continues to both boost and buffer markets which, for those in the know, means opportunity. BNY Mellon has a range of specialists who have expertise in emerging market equity, debt and local currency, each with their own unique investment processes. We have identified seven agents of change we believe will transform emerging markets for future generations, expanding investment prospects.

To find out more visit: bnymellonim.com/aoc-eu

Emerging market funds managed by:

The value of investments can fall. Investors may not get back the amount invested.

Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.

Headline Source: Techcrunch 25th September 2017.

For Professional Clients and, in Switzerland, for Qualified Investors only. This is a financial promotion and is not investment advice. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries. Effective on 31 January 2018, The Boston Company Asset Management, LLC (TBCAM) and Standish Mellon Asset Management Company LLC (Standish) merged into Mellon Capital Management Corporation (Mellon Capital), which immediately changed its name to BNY Mellon Asset Management North America Corporation. Standish is a brand of BNY Mellon North America asset Management Corporation. Issued in the UK and Europe by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. Issued in Switzerland

by BNY Mellon Investments Switzerland GmbH, Talacker 29, CH-8001 Zürich, Switzerland. Authorised and regulated by the FINMA.AB00167-034 EXP 22/02/2019. T7069 08/18.

A year in global listed infrastructure

THE M&G GLOBAL LISTED INFRASTRUCTURE FUND: ONE YEAR ON FROM LAUNCH Potential investors in listed infrastructure often have preconceived ideas about the asset class. Some are good – that it is a stable, low-risk asset class – and some are not so good – that it is low growth and uniquely sensitive to interest rate rises. After a year at the helm of the M&G Global Listed Infrastructure Fund, Fund Manager Alex Araujo gives his perspective on an often-misunderstood asset class.

3 4 ADVISER-HUB.CO.UK

INFRASTRUCTURE

IT IS A COMMON VIEW THAT INFRASTRUCTURE IS VERY SENSITIVE TO RISES IN INTEREST RATES. IS THAT TRUE? The asset class pays a higher level of income than the broader market, meaning that it loses some of its relative attractiveness when interest rates rise. This can see infrastructure assets subject to knee-jerk sell-offs when central banks change policy.

However, such sell-offs are not necessarily justified. In most cases, the cash flow from infrastructure assets is linked to economic growth and inflation. Interest rates tend to rise in line with growth and inflation, meaning that the net effect on cash flows is negligible. Also, crucially, we invest in growing businesses that pay a growing dividend, which are incomparable to bonds and therefore should not be traded according to the attractiveness of their dividend yield relative to bond yields.

As such, the sell-offs linked to interest rates can create valuation opportunities in the sector.

Markets can be very short-termist and this has thrown up opportunities over the past year.

These are high-quality businesses generating strong cash flows at a time when the market isn’t interested in owning them, so we’ve been adding to many of our holdings which have been caught up in the indiscriminate selling.

HOW HAS THE FUND PERFORMED OVER ITS FIRST YEAR?

WHERE ARE YOU FINDING GROWTH AT THE MOMENT?

First and foremost, we are pleased to have delivered a positive absolute return over our first twelve months, in a challenging environment for the asset class. We took advantage of the interest-rate-related weakness we saw in infrastructure stocks in January and February to add to some holdings, which has been a key driver of returns since then.

Throughout the year, our diversified approach to infrastructure investing – looking beyond the traditional realm of utilities, energy and transport infrastructure and investing in social and evolving infrastructure businesses – has supported returns, with nearly every sector contributing.

We have accomplished this with a beta of roughly 0.7 and less volatility than the global equity market. Importantly, we’ve protected on the downside when the broader market has fallen, such as from late January through March, without missing out on the upside when they have rebounded.

Finally, dividend growth has been strong across the portfolio, and for us that’s the ultimate measure of the health of the companies we’re investing in. We have seen double-digit dividend growth from holdings across the three classes of infrastructure that we invest in.

High-growth companies have exerted a powerful lure for investors in the recent phase and this has been a headwind for infrastructure stocks. However, there is plenty of healthy growth to be found in the infrastructure asset class. We invest across three broad categories and we find growth in all of them. In traditional infrastructure businesses such as utilities, we look for growth in areas such as renewable energy, or the growing electricity grid requirements to enable the broader deployment of electric vehicles. In social infrastructure, we look for demographic trends that drive growth.

In the evolving segment, we participate in structural trends, such as society’s digitalisation, through our investments in communications and transactional infrastructure.

IS LISTED INFRASTRUCTURE STILL A DEFENSIVE ASSET CLASS FOR MORE DIFFICULT TIMES?

HOW ARE YOU POSITIONING THE FUND TODAY?

THE RISK CHARACTERISTICS WE’VE SEEN THE FUND EXHIBIT IN ITS FIRST YEAR DEMONSTRATE THE DEFENSIVE QUALITIES LISTED INFRASTRUCTURE CAN BRING TO A PORTFOLIO AT A TIME WHEN MARKETS ARE BECOMING INCREASINGLY UNPREDICTABLE.

WHAT DOES THE GEOGRAPHIC WEIGHTING OF THE FUND LOOK LIKE TODAY? The fund has its highest weighting in North America, reflecting a preference for the regulatory regimes in this region, among other things. However, we are fully diversified and have a large part of the portfolio outside of North America, too.

Geographic weightings are partly influenced by the fact that there are certain types of infrastructure businesses domiciled in specific regions. Listed energy infrastructure is mainly a North American phenomenon, for example, while airports tend to be listed in Europe and Asia.

We do also have investments in emerging markets, where it is possible to invest to capture structural opportunities from more robust economic growth, as well as demographic and urbanisation trends. We invest in transportation infrastructure in Latin America and China, for example, and have fibreoptic exposure in Asia.

Importantly, emerging markets require additional due diligence. We tend to only invest in businesses listed on mainstream exchanges overseen by reliable regulators. We also require companies to demonstrate high-quality in-house governance.

Definitely. The risk characteristics we’ve seen the fund exhibit in its first year demonstrate the defensive qualities listed infrastructure can bring to a portfolio at a time when markets are becoming increasingly unpredictable.

However, selectivity within the asset class could not be more important, and there are numerous critical factors investors must bear in mind. Regulation will shift, for example, with different political regimes. Infrastructure is a part of the economy where political pressure tends to have a particularly strong influence.

Significant changes in the regulatory and political environment can impact a company’s ability to generate dividend growth.

It is also important to stay diversified across regions and sectors. Different markets are at different stages in the economic and monetary policy cycle, as well as different stages of economic growth and as such may have differing infrastructure needs. Holding a blend can create more consistency for investors.

Flexibility has been required recently as markets have become increasingly volatile and unpredictable. We have been investing actively in the belief that the market has been indiscriminate in selling down companies in some cases. We have seen this in economic infrastructure this year – particularly the utilities sector – and as such we have been adding here.

We have also seen it in certain regions, such as Italy, where the recent election caused company valuations to change materially and thereby created opportunities. We operate a low turnover strategy, but we believe it is important to take advantage of such episodes, where possible.

ADVISER-HUB.CO.UK 3 5

IT TAKES

IM GINATION

TO BUILD THE MODERN WORLD

The new M&G Global Listed Infrastructure Fund The M&G Global Listed Infrastructure Fund invests in the foundations of a modern society – from transportation, housing and hospitals to the communications that connect us and the energy that powers it all.

A gap has grown between the global infrastructure we have, and the infrastructure we need. And in that gap we see both a compelling investment opportunity, and the chance to invest in the essential services that affect our lives on a day-to-day basis.

The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

www.mandg.co.uk/infrastructure

For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No. 90776. FEB 18 / 266810

FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY

TAKE ADVANTAGE OF HUMAN AND MACHINE The BlackRock Advantage range of six new equity funds harness the power of human insight and machine intelligence.

Building on over 30 years’ experience, we use advanced tools to unlock one of the world’s most valuable untapped resources: big data.

Utilising innovative systems, proprietary models and advanced analytics we can quickly uncover emerging trends and patterns on a global scale.

These can be used to inform investment oppor tunities within our range of funds.

Take advantage of the power of human and machine.

Capital at risk: The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested.

Search ‘BlackRock Advantage’

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BIG DATA

HARNESSING MAN AND MACHINE David Wright, Head of Product Strategy at BlackRock's EMEA quantitative investment arm, Systematic Active Equity, discusses the opportunities in big data analysis.

There has been an explosion of data. A vast Combining these inputs – and we use over advanced picture of their impact on entire network of devices – the ‘internet of things’ 100 in our Advantage range – can give societies and economies.

– collect data on everything from weather differentiated insight into a company’s There are other areas where it is possible to patterns to consumer data. The digital universe prospects. A global fast-food chain with more use data to monitor a company’s progress. is doubling in size every two years and by 2020 than 14,000 US locations had remodelled store People looking for travel accommodation have is likely to reach 44 trillion gigabytes (1.). locations and revamped its menu. The team more choice than ever. While a single booking Perhaps more importantly, this data is were keen to understand whether this revamp reveals only an individual’s travel plans, better organised and tagged, allowing it to be had been a success and been popular with aggregating data from millions of reservations analysed effectively. As recently as 2013, less consumers. can provide an indication of future revenue for than 5% of data was actually analysed. By We monitored the firm’s progress in a hotel and restaurant groups or travel agencies.

2020, the percentage of data that is useful is set number of ways. The signals detecting foot The analysis of big data is also a vital tool in to grow to more than 35%. traffic at restaurant locations began to reflect managing risk. It can alert us to weakness in a This brings real investment company’s reputation, where opportunities for those who can opinion is changing against them.

TECHNOLOGY AND THE PROLIFERATION OF BIG DATA ARE harness and interpret big data.

Our SAE process takes into SHAPING THE INVESTMENT STRATEGIES OF THE FUTURE, Technology and the proliferation of consideration the social and big data are shaping the investment environmental footprint of all the HELPING TO INFORM OUR JUDGEMENT AND PROVIDE MORE strategies of the future, helping to companies in which we invest.

MEANINGFUL INSIGHTS. IT CAN HELP US SPOT TRENDS AND inform our judgement and provide Across the range, the intended ANALYSE COMPANY PROSPECTS AHEAD OF THE MARKET. more meaningful insights. It can exclusion criteria include mainly help us spot trends and analyse companies generating revenues company prospects ahead of the market. significantly rising consumer activity. We also from nuclear or other weapons, those directly An example of this might be in analysing identified that the firm had locations in US exposed to thermal coal extraction and the views of investors. It used to be relatively regions where economic activity was heating generation and those in violation of the UN difficult to take the pulse of sentiment towards up. Meanwhile, algorithms monitoring the Global Compact. However, big data can also a company. Now, every day, investors across the sentiment of sell-side analysts started help us analyse whether a company is seeing its globe are taking to blogs to express their views identifying that they were becoming more reputation deteriorate, whether it is on the cusp on companies. In isolation, they’re nothing more positive. This gave us the confidence to start of a social or environmental scandal, whether it than one individual’s thoughts, but amassed in building a position in the company’s stock. has problems in its supply chains. their millions, they have the potential to Months later, the company reported a Using data analytics can ‘unlock’ provide a powerful signal of a company’s better-than-expected quarterly earnings report, opportunities. Our SAE team has been building present and future prospects. sending its stock higher. The Systematic Active this data-driven process for over 30 years, using Similarly, reputation is vitally important for Equity (SAE) model had helped us gain a head innovative systems, proprietary models and companies, helping to sustain interest in their start on the company’s prospects. advanced data analytics. We believe it is a products and services, but has been relatively This year, we have seen the problems bad powerful way to gain differentiated insight into hard to measure. Social media is now a main weather can wreak on economic data. The companies’ prospects and will become forum for employees to express opinions on a ‘Beast from the East’ (2.) knocked UK GDP increasingly important as data generation company. A single post on an employee review growth and hurt the retailing sector. Elsewhere, continues to grow. site might just be one person’s opinion. But where there are serious heatwaves or combining millions of responses can indicate a hurricanes, the effect on individual communities company’s state of health, as those with happy can be disastrous. We see the extreme effects of For more information visit BlackRock’s website. employees tend to outperform their our changing climate almost every time we turn 1. EMC, Digital Universe, 2014 competitors. It is now possible to conduct on the news. Analysing millions of weather 2. The Guardian, March 2018, Freezing weather and real-time analysis of employee reviews. patterns across the globe can build an storm Emma costs UK economy £1bn a day 3 8 ADVISER-HUB.CO.UK

For Professional Clients Only

Important information: This material is for distribution to Professional Clients (as defined by the FCA or MiFID Rules) and Qualified Investors only and should not be relied upon by any other persons. Unless indicated the fund information displayed only provides summary information. Investment should be made on the basis of the relevant booklet together with the Prospectus and Key Investor Information Document, which are available from the Fund Manager. Reference to individual investments mentioned in this communication is for illustrative purposes only and should not be construed as investment advice or investment recommendation. The number of shares quoted for each fund are indicative and actual numbers may fall outside of the ranges shown. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection,

BIG DATA

telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

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MANAGED FUNDS

REFRESHINGLY PREDICTABLE While multi-asset managers look to incorporate ever-more complex asset classes in their portfolios, the Baillie Gifford Managed fund sticks to a straightforward approach. Iain McCombie, Investment Manager, Baillie Gifford Managed Fund speaks to Cherry Reynard.

The current vogue is for multi-asset funds to focus on the ‘multi’. Wary that correlations between asset classes have increased, some managers may seek to include as many different types of asset as possible, from infrastructure, to private equity, to gold.

The Baillie Gifford Managed Fund stands in notable contrast, instead relying on a straightforward mix of equities, bonds and cash.

While this may seem old fashioned, it has proved effective, with the Fund currently top quartile over one, three and five years. “It is not bells and whistles, but we don’t think you need bells and whistles,” says co-manager Iain McCombie. He also notes “we don’t believe you need to pay over the top for a fund-of funds-approach when you can invest in our Managed Fund.”

McCombie says the team’s approach on behalf of the Managed Fund is “simple but not easy” and should provide a degree of long-term resilience. The Fund has a structurally larger position in equities compared with other asset classes as, “we believe that, in the long run, share prices follow fundamentals and therefore you should expect equities to do best. That said, we recognise that investors want diversification and for that, bonds and cash are useful.”

This means the team tends to be looking to bonds for their diversification characteristics, while the cash element dampens down volatility. It also gives McCombie versatility in certain market conditions. “Over the longer term, 90% of our returns come from stock-picking rather than asset allocation, but

cash can help when there’s an opportunity.” This may only happen once a decade, but it can be important in preserving returns when it does.

EXPERIENCED STOCK-PICKERS In its 30+ years of life, the Fund has weathered plenty of storms – from Black Monday in 1987, to the UK’s withdrawal from the Exchange Rate Mechanism in 1992, the bursting of the technology, media and telecoms (TMT) bubble in 2000 and the Global Financial Crisis of 2008.

This has not changed McCombie’s view that ultimately stock-picking, rather than asset allocation, is the best way to deliver long-term returns for investors.

Baillie Gifford’s investment managers are given the freedom to deliver their best ideas.

Stock-picking is decentralised, handed to regional experts within Baillie Gifford. The overall geographic split of the Fund is decided at a quarterly meeting, where the regional managers will talk about where they are finding opportunities and their level of conviction. As such, the Fund will have a natural tilt to those areas where the managers are finding more ideas and have more conviction. The split between bonds, equities and cash is decided separately.

A recent example of this has been in emerging markets, notably in Asia, where the team is finding some good opportunities, particularly as markets have fallen. The asset allocation moves won’t be dramatic, but will evolve over time.

“WE HAVE GOT A STYLE THAT WE THINK WORKS FOR THE LONG TERM. OUR CLIENTS WANT THE REASSURANCE THAT THROUGH VOLATILE MARKETS, WE’RE NOT GOING TO CHANGE OUR APPROACH AND WE’LL STICK TO OUR STYLE. WE IDENTIFY COMPANIES SHOWING ABOVE-AVERAGE GROWTH FUNDAMENTALS AND OWN THEM FOR AS LONG AS WE CAN.”

4 0 ADVISER-HUB.CO.UK

MANAGED FUNDS

INVESTING FOR GROWTH The Fund is, to some extent, a distillation of the overarching Baillie Gifford company philosophy.

Its top holdings include companies such as Amazon, Netflix and Alphabet – high growth, global companies. McCombie says: “We like disruption companies such as Spotify, which are using data to understand their customers better.

We think there is a huge opportunity for those technology companies with a clear edge and a market-leading position.” Six of the top 10 holdings are currently in technology stocks, but companies such as BHP Billiton still make an appearance showing that the group is not wedded to big tech.

In contrast, the team has been selling down consumer staples such as Nestle. McCombie says: “It is not a bad company, but its growth profile is not very exciting and investors are paying a high price. It has done very well over the long term, but it is struggling to grow now.”

The team takes a flexible, global approach to the fixed income side. At the moment the portfolio has an allocation to emerging market

debt. McCombie is trying to find individual ideas that can bring value and diversification. The yield on the Fund is currently 1.8%, but this is an outcome rather than a target. UK bonds currently make up just 1.9% of the portfolio, while cash and derivatives sit at 6.9%.

Baillie Gifford has had a strong run as its growth style has been in favour. McCombie admits that growth investing falling out of favour is one of the greater risks he faces, “it has been a good place to be. That said, if it does have a weaker patch, we are not going to change our approach. We have got a style that we think works for the long term. Our clients want the reassurance that we’re not going to change our approach through volatile markets and we’ll stick to our style. We identify companies showing above-average growth fundamentals and own them for as long as we can.”

Greater complexity isn’t always the answer.

While other managers may focus on incorporating ever-more eclectic asset classes into their multi-asset ranges, the Baillie Gifford Managed Fund will continue with its ‘simple but

not easy’ blend of traditional asset classes. As such, it is refreshingly predictable.

Important Information: For financial advisors only, not retail investors.

All data is as at 30 June 2018 unless otherwise stated. As with any investment, your clients’ capital is at risk. Past performance is not a guide to future performance. This article contains information on investments, which does not constitute independent investment research.

Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed should not be taken as fact and no reliance should be placed upon these when making investment decisions. They should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This information has been issued and approved by Baillie Gifford & Co Limited who are authorised and regulated by the Financial Conduct Authority (FCA).

ADVISER-HUB.CO.UK 4 1

BAILLIE GIFFORD MANAGED FUND

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THINK OF IT AS A ONE-STOP SHOP. For three decades the Baillie Gifford Managed Fund has offered investors a practical one-stop shop. The fund serves up three highly liquid asset classes with a basic asset allocation of around 75% equity, 20% bonds and 5% cash.

It is managed by a dedicated team, drawn from our regional investment desks, complemented by our fixed interest experts. And that team is made up of pure stock-pickers who seek to fill the portfolio with the most exciting ideas within Baillie Gifford. They invest with no reference to any index and expect outperformance to be driven by companies, not markets.

With an equity bias but a place for the individual attractions of bonds and cash, the Baillie Gifford Managed Fund could be the only investment your clients will ever need.

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IA Mixed Investment 40%–85% Shares Sector Average

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As with any investment, your clients’ capital is at risk. Past performance is not a guide to future returns.

For financial advisers only, not retail investors.

To start one-stop shopping please call 0800 917 4752 or visit us at www.bailliegifford.com/intermedaries

Long-term investment partners

*As at 31 January 2018, based on B Acc shares. **Source: FE, B Acc shares, single pricing basis, total return. Your call may be recorded for training or monitoring purposes. Baillie Gifford & Co Limited is the Authorised Corporate Director of the Baillie Gifford ICVCs. Baillie Gifford & Co Limited is wholly owned by Baillie Gifford & Co. Both companies are authorised and regulated by the Financial Conduct Authority.

U K E Q UX IXTXI XE SX

Richard Dunbar Aberdeen Asset Management

Nigel Thomas AXA Investment Managers

Chris St John AXA Investment Managers

UK EQUITIES: ADAPTING TO CHANGE IT HAS BEEN A DIFFICULT FEW YEARS FOR INVESTORS IN THE UK MARKET, BUT THERE ARE STILL COMPELLING OPPORTUNITIES, SAY NIGEL THOMAS AND CHRIS ST JOHN, MANAGERS OF THE AXA FRAMLINGTON UK SELECT OPPORTUNITIES FUND IN A RECENT WEBCAST.

FOOD FOR THOUGHT

Investment opportunities in UK equities in terms of spawning new industries such as reverse logistics.

The past two years have proved to be a challenging time to Thomas adds that e-commerce is a key investment theme invest in UK equities, due largely to the uncertainty created by driving the UK economy, with one of the Fund’s holdings, Brexit and the subsequent effects it has had on the market.

Worldpay, being a good example of how the Fund can However, while many investors have flocked to global funds, exploit ABE this. HAS HAD A BUSY JAPAN’S PRIME MINISTER SHINZO Nigel Thomas and Chris St John, managers of the AXA “In the UK some 20% of all apparel is bought online, against MONTH, Fund, SAYS RICHARD INVESTORS Framlington UK Select Opportunities maintain that theDUNBAR 15%–inAND FranceGIVEN and Spain at 6%,” he says. “Worldpay is a FTSE global nature of many UK businesses still makes forMUCH compelling 100 company TO THINK ABOUTand enables much of this commerce, and is a good investment opportunities. example of a company that is not dependent on the UK economy for its continued success.”

“Think globally, invest locally” According Wetohave Thomas, not been “When short youoflook newsflow at the in UKJapan economy, over the it’s a decent A well-planned cumulative transition operating profit and – wait for it – decent global economy. don’t live in isolation.

We’re an island nation, Thomas hands over the management of the AXA Framlington UK past few We weeks.

Round about Halloween, prime minister corporate governance. obviously, Shinzobut Abewe reloaded have tohis follow monetary trends,cannon and Chris to take and aim I lookonce at Select Cynics Opportunities may say that Fund if the to St requirement John in January for entry nextisyear to be ahead global again companies at his country’s and compare moribund themeconomy. to UK ones.

ThisOnly was 27% a full-on of better of his than retirement the average in March.

Japanese Thecompany Fund hason delivered these impressive revenues assault, oninvolving the All Share the use Index of unprecedented are UK domestic; levelsthe of measures,long-term this is a bar performance that is set pretty for investors, low. However, delivering Abe Fundquantitative matches that, easing so we allied havewith to think a more aggressive allocation views the corporate first-quartile sectorreturns – and relative by logical toextension the IA UKits All internationally policy fromall thethe Government time.”

Pension Investment Fund. owners – as a primary Companies culprit sector for and the country’s an annualised economic excess return “When you lookmalaise. at the UKHe seesofthis Some in the market feared these hasty and unexpected 2.3% index overasthe a route FTSE to All-Share improvesince returns Nigel and took it’sto a global Recovering from athe ‘bad Brexit’ over the Fund in September 2002 . actions meant prime minister knew something theeconomy, rest improve governance. economy. live inindicationsThomas St John of usadds: did “We not –run fears thethat Fund looked usingto a multi-cap be well-founded with the We don’t Early are thatand those St John who were have blackballed worked together by for isolation. We’re an island investment approach and before 13 yearscommittee and St John saysbeen investors should release of third-quarter GDP Brexit figureswe in were the membership have chastened byexpect nation, obviously, but we underweight in the mega caps which a which evolution rather revolution terms of how the mid-November.

An annualised fallled of to 1.6%, the experience.

If this index – andinthe futures have to follow trends.” difficult had period followed as the mid7.3% and small fall the caps previous and domestic quarter, contract portfolio attached will be to managed. it – captures the “Abe views the stocks went down dramatically."

“There willwe becan no expect big bang, no change in style certainly did not give much succour to imagination, a lengthy queue of corporate sector – and by and chief "However anyoneaslooking share prices for evidence fell, it led of to theopportunities efficacy no change executives in theatmake-up the membership of the portfolio,” he logical extension its says. “Nigel which of we thelooked prime minister’s to take advantage policy broadsides of, with our focus secretary’s and I areoffice, similar clutching investors, evidence meaning ofthe their Fund owners – as a primary remaining an will evolve overimproved time justcredentials. as it wouldThis if hewould was running it." so far. firmly on long-term fundamentals. Brexit proved surely be culprit for the country’s extreme Abe example completed of capital a busy flows month knocking by calling a number a of share good news for the Japanese stockmarket and economic malaise.” prices down election dramatically, then over The time the fundamentals had a To watch the latest webcast economy. with Chris and Nigel, please visit general for December. the Japanese chance announcement to reassert themselves was accompanied and consequently by a equity prices adviser.axa-im.co.uk/webcasts

There is much to think about. Looking started postponement to recover." of the planned sales tax until April at November as a whole, there can be little doubt This communication for professional clientsprime only and must notAbe be relied "The improved lot over the past 12 months 2017Fund – 18has months later athan originally planned.

This and about the isdirection in which minister is upon by retail clients.

Thishis communication not constitute an offer to make year-to-date decision disappointed is ahead of the some FTSEofAll-Share,” the more hawkish says Thomas. members “Our trying to pull country. Ofdoes course, one does not have toanbe norJapanese constituteequity an offer investor for sale andtois provided for information preference is for those companies of his Liberal Democratic party.in the FTSE 100 or the FTSE ainvestment seasoned have tasted purposes only. The views expressed the time writing do but not constitute 250, where There weiscan little seedoubt both that earnings foreign growth investors and awould growth cast in disappointment in her marketatand her ofeconomy at least investment advice and may differ fromtothe views anyweapons company within dividends. their vote Ourfor focus prime is on minister stock picking Abe – but within of course the UKthey economy, do not Abe has shown he is prepared use allofthe at histhe AXA InvestmentThe Managers Group.

Past performance not a guide to future looking havetoa identify vote to cast. thoseThe companies announcement that think thatglobally Japanese and electors can disposal. coming months should beisinteresting. performance. The value of investments and the income from them can fluctuate copehave withthe change.” opportunity to exercise their own two years earlier and investors may not get back the amount originally invested. Potential investors than expected gives us plenty more food for thought. must readDunbar the Prospectus and the Keyof Investor Information Issued by Investment And ifthemes all this was not enough for investors, November Richard is deputy head global strategy Document.

– investment AXA Investment ManagersAsset UK Ltd,Management. which is authorised regulated by the Withclosed an investment philosophy based aroundcontract coping with with the introduction of a futures on the solutions at Aberdeen Heand writes regularly Financial Conduct Authority. in England Noamong 01431068.

The registered change, thinking400 globally for tomorrow, Johndoes JPX-Nikkei index.and Thisinvesting is important.

The NikkeiSt400 for Adviser-Hub, with hisRegistered articles to be found those office aaddress 7 Newgate Street, London EC1A 7NX. saysnot that, just while focus many on market of the arguments capitalisation around or free-float. technology Entry are from broadisrange of investment and economic experts in the well into rehearsed, he notesclub the requires implications arereturn “absolutely stark” this particular decent on equity, Analysis & Opinion section at www.adviser-hub.co.uk ADVISER-HUB.CO.UK 4 3

LOOK TO THE FUTURE Financial advisers are under-engaging with the next generation. A new report from OppenheimerFunds suggests advisers are missing an opportunity to build long-term relationships with families as wealth transitions across generations.

Recent reports have shown that more than 90% of beneficiaries change advisers when they inherit1, but a new report from OppenheimerFunds demonstrates that advisers are not taking steps to retain a relationship with the spouses and heirs of clients. The majority of the advisers surveyed (81%) said they talk about estate planning with their primary clients as a way to retain the spouse, while 70% have these conversations as a way to retain heirs of clients.

However, one-quarter (25%) of advisers do not prioritise the retention of the next generation as clients.

It also found that advisers tend to be under-engaged with both their primary clients and their clients’ families; for 4 4 ADVISER-HUB.CO.UK

example, only 40% advise their primary clients about spending, and still fewer (32%) teach their primary clients’ children about spending. The vast majority (88%) of advisers explain investment concepts to their primary clients, but only a little over half (54%) work to educate the next generation about investing principles. Best practice would be to prepare spouses and younger generations for the responsibilities of wealth, but also help to preserve that wealth and ensure a seamless transition.

Taking a multi-generational approach The level of adviser engagement with HNW clients across

B E T T E R B U S I NX EX SX SX

U.K. ADVISERS HAVE TRADITIONALLY TENDED TO FOCUS ON A PARTICULAR GENERATION, RATHER THAN TAKING A “WHOLE FAMILY” APPROACH, OFTEN TO THE DETRIMENT OF INTER-GENERATIONAL PLANNING AND RELATIONSHIPS.

generations is just one of several findings in The Generations Project U.K.. Amid the greatest inter-generational transfer of wealth in history – an estimated £115 billion in the U.K. over the next 10 years – it set out to capture insight from several generations of HNW investors: Millennials, Generation X, Baby Boomers and the Silent Generation, surveying 900 investors and advisers in the U.K. and another 1,000 investors and advisers in the U.S2.

It showed that UK advisers have traditionally tended to focus on a particular generation, rather than taking a “whole family” approach, often to the detriment of intergenerational planning and relationships. If they wish to retain an entire family as a long-term client and ensure the smooth transition of family assets from one generation to the next, advisers have to learn to engage with all the different generations.

1. Intergenerational Wealth Transfer: The opportunity for financial advisers. CEBB/Kings Court Trust, March 2017.

2. U.K. Research: The Generations Project U.K. OppenheimerFunds.

Generational challenges and adviser disconnects It’s not just advisers who aren’t engaging: investors also appear reluctant to discuss their finances with their own families. Nearly half the investors we surveyed (46%) aren’t currently talking with their spouse or partner about their finances – and 30% have never discussed them. By facilitating and supporting communication and understanding across the generations, advisers can help to smooth the path to inheritance.

The study also revealed a sizeable gap between what investors want and what advisers believe they want. In particular, many advisers underestimate their HNW clients’ prioritisation of good investment performance. The most important quality sought by HNW Millennial investors in a financial adviser is good investment performance (38%);

however, 40% of advisers think that HNW Millennial investors’ top priority is for their adviser to have a clear understanding of their goals, with good investment performance ranking only eighth amongst advisers at 21%, along with fees/commissions.

The study identifies another mismatch in understanding between advisers and clients when it comes to sustainable investments: advisers believe that environmental impact is the most important sustainable investment characteristic (36%) to HNW clients. In fact, sustainability is the most important factor for HNW investors who hold sustainable investments – and again, the strength of long-term returns from sustainable investment strategies appears to carry greater weight with clients than advisers appreciate (16% of investors versus only 6% of advisers).

Strengthening cross-generational relationships for the long term In addition to these disconnects, the report showed a tendency for investors of all ages to focus overwhelmingly on UK investments – even in a global economy where much of the world’s growth comes from outside the UK – and the potential missed opportunities stemming from our finding that few advisers are helping families with financial education.

Evolving investor expectations, changing priorities and generational preferences are having a profound effect on the adviser-client relationship. By transitioning from a one-on-one service to a “whole family” model, advisers may be better positioned to grow relationships and provide trusted advice to the entire family as wealth transitions from one generation to the next.

ADVISER-HUB.CO.UK 4 5

IMPACT INVESTING

IMPACT INVESTING: THE FUTURE OF ACTIVE MANAGEMENT? A recent study showed that more than half (55%) of investors say they would like their money to support companies that contribute to society and the environment.

Investment managers are taking note.

Investing for good is a fast growing trend – and one worth exploring cream. The firm has cut packaging waste per consumer by 28% since for any professional or private investor. Many savers feel passionate 2010. It has targeted at least 25% recycled plastic content in its packaging about protecting the environment – in particular, reducing the amount of by 2025. This is just one example of countless companies all over the plastic waste. But investing for good goes much further than simply world which have announced plans to behave in a more responsible backing companies that promise to improve or manner. Instead of seeking out these companies preserve the environment. to add to an ISA or pension portfolio, investors “MANY ASSET MANAGEMENT Responsible investors pay particular attention can rely on a fund manager to undertake the GROUPS REVEAL THAT THEY ARE to a company’s record on environmental, social, search on their behalf.

WORKING TO INTEGRATE ESG INTO and governance (ESG) issues which can help One issue that comes up time and time again THEIR ENTIRE BUSINESSES – SOME measure just how responsible or sustainable a in the report is the misconception that limiting company is. the companies in which you can invest could ARE ALREADY DOING IT. FUND A recent study showed that more than half (55%) hinder investment performance. As the report MANAGERS AND ANALYSTS ARE of investors say they would like their money to WORKING HARD TO FIND COMPANIES discusses, there is growing evidence that suggests support companies that contribute to society and that funds which adopt an ESG approach will see THAT ARE COMMITTED TO A the environment. a boost in performance.

SUSTAINABLE FUTURE.” Impact investing, where investments are made Impact Investing: An Industry View includes a with the aim of generating social and range of interviews with key industry figures environmental impact alongside a financial return, is also on the rise. about the growing demand for ESG and impact investing, why it’s However, it’s not just investors that are keen to embrace this kind of important and the challenges faced. A View from the Top features an investing. There’s support from the Government, the regulator and exclusive roundtable with Euan Munro, Chief Executive Officer of Aviva crucially, asset management companies.

Investors, Peter Harrison, Group Chief Executive of Schroders and Richard The report, Impact Investing: An Industry View was compiled for the Wilson, Chief Executive Officer of BMO Global Asset Management.

London Active Summit, and unveils the progress being made in this space.

Leading independent investment experts including Richard Romer-Lee, It explores how asset managers are increasingly focusing on providing managing director of Square Mile Investment Consulting & Research and more investment opportunities, taking ESG factors into consideration.

Will Goodhart, chief executive of the CFA Society UK, shed light on the The report highlights the wave of sustainable and impact fund launches in challenges faced. the last 12 months alone – adding to the existing ranges of funds that The verdict by industry figureheads is that impact and ESG investing serve this sector. As well as running specific ESG funds, many asset looks set to be the future. As Jamie Jenkins, Head of Responsible Global management groups reveal that they are working to integrate ESG into Equities at BMO Global Asset Management told me: “Investing for good is their entire businesses – some are already doing it. Fund managers and not a nice-to-have in a portfolio – it’s a must-have.” analysts are working hard to find companies that are committed to a sustainable future. These include household names such as Unilever, the Holly Thomas - Financial journalist and author of Impact Investing consumer giant that is home to Marmite, Dove soap and Magnum ice 4 6 ADVISER-HUB.CO.UK

PARTNER DETAILS AVIVA INVESTORS t: 020 7809 6521 e: avivaciss@avivainvestors.com avivainvestors.com/en-gb/adviser.html

JANUS HENDERSON INVESTORS t: 020 7818 2839 e: Sales.support@janushenderson.com janushenderson.com/ukpa

BAILLIE GIFFORD t: 0800 917 4752 e: trustenquiries@bailliegifford.com bailliegifford.com

LEGAL & GENERAL INVESTMENT MANAGEMENT t: 0345 070 8684 e: fundsales@lgim.com lgim.com/uk/ad

BLACKROCK t: 0800 445522 e: broker.services@blackrock.com blackrock.co.uk

M&G INVESTMENTS t: 0845 600 4125 e: info@mandg.co.uk mandg.co.uk/adviser

FIDELITY INTERNATIONAL t: 0800 368 1732 professionals.fidelity.co.uk

SCHRODERS t: 0207 658 3894 e: advisorysalesdesk@schroders.com schroders.co.uk/adviser

GOLDMAN SACHS ASSET MANAGEMENT t: 020 7774 7779 e: fundinfo-uk@gs.com gsamfunds.com

SQUARE MILE RESEARCH t: 020 3700 7393 e: info@squaremileresearch.com squaremileresearch.com

INVESCO t: 0800 028 2121 e: adviserenquiry@invescoperpetual.co.uk invescoperpetual.co.uk/adviser INVESTEC ASSET MANAGEMENT t: 020 7597 2000 e: enquiries@investecmail.com investecassetmanagement.com

SPONSOR DETAILS AXA INVESTMENT MANAGERS t: 020 7003 2345 e: axa-im@uk.dstsystems.com axa-im.co.uk

JUPITER ASSET MANAGEMENT t: 020 3817 1063 e: enquiries@jupiteronline.co.uk www.jupiteram.com

BNY MELLON ASSET MANAGEMENT t: 020 7163 8888 e: www.bnymellonim.co.uk salessupport@bnymellon.com

NEPTUNE INVESTMENT MANAGEMENT t: 020 3249 0100 e: enquiries@neptune-im-co.uk www.neptunefunds.com

FIRST STATE INVESTMENTS t: 020 7332 6500 e: enquiries@firststate.co.uk www.firststateinvestments.com

XXXX

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