RSMR Invest magazine - issue 3

Invest ISSUE NO. 3 • AUTUMN 2018

Technology in the financial landscape

Big Data

Cyber-risk

A Changing World

Global Round-up

The effect technology is having on asset management

A look at how investors can prepare for the unpredictable

Trends changing the future of investing

Trade tariffs and Brexit dampening economic activity

Our best ideas for your clients

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Important Notice This is intended for investment professionals and should not be relied upon by private investors or any other persons. Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise, is not guaranteed and your clients may get back less that they invest. RSMR Portfolio Services Limited is a limited company registered in England and Wales under Company number 07137872. Registered office at Number 20, Ryefield Business Park, Belton Road, Silsden BD20 0EE. RSMR Portfolio Services Limited is authorised and regulated by the Financial Conduct Authority under number 788854. Š RSMR 2018. RSMR is a registered Trademark.

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Contents

Autumn 2018

04 ABERDEEN STANDARD: The Case for UK Equities 06 FIDELITY: Selective Opportunism Despite Global Headwinds 08 BLACKROCK: New Technologies Changing Asset Management

A – Z OF TECHNOLOGICAL CHANGE WELCOME to the autumn 2018 edition of Invest: our quarterly magazine for investment-focused advisers and planners operating in the UK. In this edition we have articles on the theme of technology and how it is changing our daily lives.

Whether it’s Amazon or Zozotown the growth of robots and the online marketplace never ceases

10 GOLDMAN SACHS: Investing with Big Data and Machine Learning 12 JUPITER: Identifying Change: How We Filter The Universe 16 INVESCO PERPETUAL: Why Multi-Asset for Income 18 SCHRODERS: Cyber-Risk: How Investors Can Prepare for the Unpredictable

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to amaze me of the extent of the ingenuity of

CENTRE PAGES:

humankind.

I can’t imagine there are many people who have

BAILLIE GIFFORD: A Once in a Multi-Generational Shift in the Global Economy

not heard of Amazon but what about Zozotown?

Its Japanese founder and billionaire, 42-yearold Yusaka Maezawa, has just announced the purchase of all the seats on the five-day, 800,000km trip around the moon in a rocket built

by Elon Musk’s company SpaceX. Scheduled for lift-off in 2023, Mr Maezawa wants to invite six to eight artists from around the world to join him. What an opportunity for someone, yet without the investment in new technologies such space travel would still just be a dream.

On the downside his announcement sparked a

22 BNY MELLON: Agents of Change: The Trends Changing The Future Of Investing 24 INVESTEC: What to do as the Liquidity Taps Close?

30 JP MORGAN: Can New Technology Jump-Start Long-Term Economic Growth?

32 JANUS HENDERSON: Dividends — Unloved, Out Of Favour And Compelling!

38 COLUMBIA THREADNEEDLE: The Four Horsemen Of Asset Allocation

near 5% drop in the value of his company, Start Today, responding to the potential risks involved.

Plus ça change, plus c'est la même chose!

Enjoy the read. n

Geoff Mills, RSMR

OUR OPINION 14 Ken Rayner: Global Round-up 25 RSMR Investment conference and R Awards 28 Graham O'Neill: A postcard from Hong Kong

CONTACT DETAILS:

34 Patrick Morris: A Multi-Asset approach to funding

Rayner Spencer Mills Research Limited Number 20, Ryefield Business Park, Silsden BD20 0EE. Tel: 01535 656555 or

Invest magazine is published by Rayner Spencer Mills Research Limited (RSMR). The views expressed do not necessarily reflect the views of RSMR or any other party affiliated to RSMR, and no liability can be assumed for the accuracy or completeness of the content, nor should any of the content be used as the basis of any advice offered.

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© RSMR 2018. RSMR is a registered Trademark.

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THE CASE FOR UK EQUITIES

WINNER OF OUR ‘ONE TO WATCH’ AWARD 2014

Consensual pessimism has created compelling opportunities for bottom-up stock-pickers.

Our full market coverage and deep investment insights mean we are wellplaced to take advantage of such opportunities, generating potential for outperformance for our clients.

Aberdeen Standard Fund Manager, Thomas Moore, explains why he feels current negativity is being overstated and the future is in fact much brighter.

P

ark the pessimism.

The negative mood enveloping UK equities looks overdone – we argue there are compelling reasons to invest at the current time. In particular, the consensual pessimism has created pricing anomalies that, for bottom-up stock-pickers, offer meaningful upside return opportunities. With our full UK market coverage and deep investment insights, we are well-placed to take advantage of such opportunities, generating potential for outperformance for our clients.

A parting of ways UK equities have fallen from favour and pessimism has taken hold. The BAML global fund manager April survey revealed that UK equities are considered the least attractive asset class across global markets.

Looking at returns, over the past year or so, UK equity indices have lagged most other major equity markets.

Underlying the weakness is a marked bifurcation of the market. While most internationally-focused stocks have held up comparatively well, UK-domestic stocks are singularly unloved, trading at valuations last seen post the 2008 financial crisis (see Chart 1). Historically, such circumstances have proved fertile hunting ground for stockpickers. Indeed, our analysis reveals many of these stocks continue to benefit from strong fundamentals and a positive outlook, offering value to investors compared with the broader market.

What is weighing on investor sentiment?

Is the gloom justified?

Several factors are at play. In our view, the

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risks are overstated.

Brexit uncertainty With under a year to go until the UK officially leaves the European Union (EU), investors are understandably perturbed by the lack of clarity over the terms of Britain’s withdrawal and its implications for the economy. However, with opinions sharply divided, the UK appears on course for a moderate outcome rather than an extreme shift away from the EU. Moreover, history reminds us that companies adapt and innovate in response to change; we expect new opportunities and entities to emerge, as the UK’s relationship with Europe progresses and continues to evolve.

Economic slowdown The recent slowdown in UK growth has contributed to negative sentiment. Nevertheless, the UK economy is still growing, bolstered by improving global activity.

Additionally, unemployment has reached historically low levels and wage growth has finally started to outpace price rises, which bodes well for consumer spending.

Political instability Investors are worried about the UK government’s weak position and the threat that a government led

by Jeremy Corbyn would pose to the UK economy.

However, not all stocks and sectors would be affected equally. With many UK companies deriving a significant portion of their earnings overseas, the UK stock market is not the UK economy. At the same time, we note recent polls suggest Mr Corbyn is failing to win new ground.

Why invest in UK equities?

Not only do the negatives appear overstated, we believe there are outright positive reasons for investing in UK equities. l Valuations are attractive. l The UK offers a higher yield than most developed equity markets (gross dividend yield c. 3.7% versus 2.7% for Thomson Reuters Global Equity Index, as at 29 May 2018). l International investors are underweight UK equities, yet corporate M&A activity has increased, implying there is genuine value to be found. l With expectations so low, any slight improvement in sentiment is likely to catalyse flows back into UK equities. l From a contrarian viewpoint, increasing exposure to UK equities offers greater return potential versus a consensual allocation.

l Consensual pessimism has created compelling opportunities for bottom-up stock-pickers. Our proven, non-consensual approach and full market coverage mean we are well-placed to take advantage of such opportunities, generating potential for outperformance for our clients.

Longer-term considerations No less important to asset allocators, the UK equity market offers: l High standards of corporate governance and the rule of law l A wide range of quality companies across industry sectors l Broad-based innovation l A dividend-paying culture l Access to global markets: reflecting one of the most open and global economies in the world, the UK stock market gives exposure beyond the UK.

Why Aberdeen Standard Investments for UK equities?

In pursuit of delivering successful investment outcomes, our funds benefit from the strength and depth of our resource and our rigorous bottom-up fundamental research. The effectiveness of our approach and the competence of our investment teams are reflected in the strong track records of performance that our broad range of UK equity funds has delivered for clients over many years. n

The value of an investment is not guaranteed and can go down as well as up. An investor may get back less than they invested. Past performance is not a guide to the future. Please refer to the Key Investor Information Document or the Prospectus for more details of the risks applicable to each fund

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SELECTIVE OPPORTUNISM DESPITE GLOBAL HEADWINDS Despite spreads returning to mid-2016 levels, a 40% increase so far in 2018, fundamentals are still looking strong with leverage continuing to fall and credit ratings improving.

Eugene Philalithis, Portfolio Manager of the Fidelity Multi Asset fund range looks at the drivers behind the current global headwinds, and why they might throw up opportunities for income generation.

I

t’s no secret that there are growing headwinds facing the global economy, but while it is becoming easy to focus on issues such as trade wars and the decoupling of US markets from the rest of the world, we are ever mindful that with uncertainty and volatility also comes opportunity. While it’s important to understand risk and protect a portfolio on the downside, our team believes there is a good case for selective optimism over the coming months.

In this context, a key area we have been adding to is Asia high yield, an asset class we believe was meaningfully oversold in the first half of 2018. This sell-off occurred for a number of reasons, including rising US treasury yields pushing investors away from risk assets, a squeeze in Chinese liquidity coming out of the government’s deleveraging effort, and further risk-off sentiment driven

by Trump’s ‘trade war’.

However, these reasons to be fearful are only one part of the picture, and we are also seeing some present cause for optimism. Chinese monetary policy appears to be loosening, which is likely to boost the liquidity of commercial banks and in turn benefit the high yield bond market.

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Technical factors also appear to be turning the corner, with new issuances being met with strong demand as global flows into the asset class increase. Despite spreads returning to mid-2016 levels, a 40% increase so far in 2018, fundamentals are still looking strong with leverage continuing to fall and credit ratings improving. Relative to other high yield regions Asia is attractive, with spreads in Euro high yield widening only 25%, and US high yield experiencing no spread widening.

For some time now, emerging markets local currency debt has been more favourable than USD denominated bonds due to the strong dollar, and the resulting higher funding costs for issuers. But we have recently experienced a pick-up in yield and quality by adding back to hard currency debt, based on our view that these bonds have been oversold. Given we want to be defensive as well as look for yield, we like the USD duration exposure that this allocation provides.

We also see positive prospects for financials, although we remain cognisant of the regional and asset class nuances in this sector. In the US, after a long period of regulatory headwinds, bank stocks are back to growing their dividends (a key consideration

SECTION HEAD

for income funds) in what has been a sustained period of growth in the US economy, with rates continuing to rise.

In terms of fixed income exposure to the sector, we think European financial bonds are positioned positively, with deleveraging continuing to improve balance sheets, and the rate of non-performing loans still declining.

Although we have seen strong performance from alternatives so far this year, we are mindful of the politically sensitive nature of some investments, such as private finance initiatives in the UK, and are positioning

SECTION HEAD

ourselves accordingly. However, given this late cycle environment we still like the asset classes’ low correlation to traditional markets.

Overall, the path of selective optimism is an important balancing act at this stage of the cycle. While opportunities are still presenting themselves, we are watching carefully how various headwinds develop moving forward. In the meantime, we look to maintain defensiveness to preserve capital, as well as look for opportunities for income generation and capital growth. n

IMPORTANT INFORMATION This information is for investment professionals only and should not be relied upon by private investors. 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. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Investments in overseas markets, changes in currency exchange rates may affect the value of an investment.

The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuer's ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between different government issuers as well as between different corporate issuers. Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the fund investing in them. Investments in small and emerging markets can be more volatile than other more developed markets. The Fidelity Multi Asset funds use financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This article may not be reproduced or circulated without prior permission. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0818/22445/SSO/NA

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NEW TECHNOLOGIES CHANGING ASSET MANAGEMENT BlackRock’s Richard Mathieson gives us his opinion on Big Data and how the company test the insights gathered to ensure they are valid and sustainable for investors.

Data needs to be used carefully, and tested thoroughly, to ensure that insights are valid and correct .

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‘B

ig data’ is a buzzword for our times. Data is being collected at a dizzying pace by a vast network of devices, gathering information on everything from weather patterns to consumer data. The digital universe is doubling in size every two years and by 2020 is likely to reach 44 trillion gigabytes¹. This data is better organised and tagged than ever before.

Smartphones, GPS and “smart home” devices like Alexa and Siri are just a few examples of technologies that are changing communication, transportation and daily tasks. Industries are being transformed, with companies finding new ways to improve their goods and services using innovative technologies.

Asset managers are no exception. The investment management industry has recognised the potential for big data to give differentiated insights into companies.

However, data needs to be used carefully, and tested thoroughly, to ensure that insights are valid and correct and can be sustained over time. The BlackRock Systematic Active Equity team has built its process based on four key insights.

Autumn 2018 www.rsmr.co.uk

The first is that there needs to be lots of data sources, as well as the ‘right’ data. We believe those looking to build real insights from big data must cast a wide net when seeking to find the right data. The global economy and financial markets are highly complex, and the data they generate are often unstructured and noisy. It is important to leave no stone unturned and to evaluate as much data as possible to determine which may be most useful in an investment process.

We also believe that the ability of technology to analyse a massive amount of data within seconds is so impressive, it is easy to forget that it is human expertise that brings technology’s power to life. Machine learning algorithms, for example, can analyse reams of data in a flash and generate insights, learning far faster than humans can. An example would be medical scans – a machine can read and analyse more scans than a radiologist could in a lifetime. However, it must be paired with human insight to make it relevant and meaningful.

Similarly, an investment team’s technology may lose its edge without constant innovation. Investment opportunities have a lifecycle. They are created by market inefficiencies, and these opportunities can be discovered by analysing alternative data through data science techniques. However, those opportunities

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 will be broadly discovered over time and efficiently priced. To stay ahead, investment teams need to find new data sources and re-examine the way those data sources are analysed.

Finally, we believe a collaborative culture is important to sustain innovation. Investment teams must contain diverse skill sets and ensure those skillsets are properly integrated. Teams must be encouraged to work together to improve current data techniques and to test ideas without fear of failure. We regularly engage in ‘hackathons’ where team members work together and compete to create technologies and new uses for current technologies that can aid the investment process.

With this in mind, we believe it is possible to gather differentiated insights from big data over the long-term.

For example, by using social media, we can judge a company’s reputation, the strength of its brand, or the potential for it to bounce back from failure. We can take the pulse of investor sentiment towards a company by looking at the views of bloggers. By analysing millions of weather patterns across the globe, we can build an advanced picture of their impact on entire societies and economies.

Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

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.

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.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

Big data is a powerful tool and we believe it has the power to enhance investment returns over time.

However, to sustain this insight, a team must innovate and make the best use of all its resources. n

© 2018 BlackRock, Inc. All Rights reserved. BLACKROCK,

¹ The Digital Universe of Opportunities: Rich data and the increasing value of the universe of things, EMC, April 2014.

trademarks of BlackRock, Inc. or its subsidiaries in the

l Find out more at BlackRock.com

those of their respective owners.

BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylised ‘i’ logo are registered and unregistered United States and elsewhere. All other trademarks are

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INVESTING WITH BIG DATA AND MACHINE LEARNING Gary Chropuvka, co-head of Goldman Sachs Asset Management's Quantitative Investment Strategies team, explains why Big Data and Machine Learning are critically relevant for investment management.

How is big data affecting the investment industry?

Big data is disrupting and transforming every industry in the world, not just in the investment industry. If you have a smartphone with you right now, you're creating big data as we speak -- GPS apps, for example, are running in the background, and messages and notifications are being received and sent continuously. When we think about big data and its ability to impact the investment management landscape, we like to remind

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ourselves of two key statistics. First, 90 percent of all the data around the world has been generated in the last two years and, second, studies have shown that less than two percent of all the new data is even being evaluated. In other words, we have a wealth of new data available and no one is looking at it. What that means is that if you have the ability and technology to capture, analyse and glean insights from this data, then you may potentially have an informational advantage over other investors.

How do investors analyse and interpret all of this data? What type of insights can you generate from the information collected?

One of the Machine Learning tools we use is Natural Language Processing to read earnings call transcripts. We have hundreds of thousands of earnings call transcripts in our library and we have computers that read and try to understand the sentiment within them. We've been able to make several interesting observations here. While the call itself is often helpful, what's more interesting is the question-and-answer period. We have found that the degree to which analysts are complimentary during the Q&A period is actually a subtle indication of their own sentiment and whether they're leaning more bullish or bearish. Based on thousands of transcripts from earnings calls, we can calibrate each analyst's historical propensity to offer compliments. So, on new conference calls, we can tell whether an analyst is more or less complimentary relative to their historical average. With the right technology and experience, you can detect an analyst's sentiment before it appears in a written report.

always be a need for human judgment. So while some functions may disappear due to automation, the core function of a human portfolio manager will always be crucial. As markets change, portfolio managers need to ask the right questions and train computers to focus on the right areas. I'll give you an example. Certain geopolitical events or natural catastrophes are market-moving events but they don't move markets because of changes in company fundamentals. They move markets because of investors' fear, global uncertainty and other idiosyncratic external factors. That's where human judgment and experience can play a key role. In addition, areas of disruption where businesses are changing before our eyes require portfolio managers to adapt and identify investment insights. n

It sounds as if it won't be long before a computer algorithm ultimately makes investment decisions for us. Will we get to a stage where human oversight will not be necessary?

This sort of evolution of technology is inevitable and has happened repeatedly through history. People's jobs will most likely need to change as a result of technology but innovation has historically resulted in increased productivity and boosted economic growth which, in turn, helps improve global prospects. For investors, there will

In the United Kingdom, this material is a financial promotion and has been approved by Goldman Sachs Asset Management International, which is authorized and regulated in the United Kingdom by the Financial Conduct Authority.

Confidentiality No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

Economic and market forecasts presented herein reflect our judgment as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance.

Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts.

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 page and may be subject to change, they should not be construed as investment advice.

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IDENTIFYING CHANGE: HOW WE FILTER THE UNIVERSE In this interview with Ross Teverton, Fund Manager of Jupiter's emerging markets portfolios, we discover how looking for underappreciated change is a key part of how Jupiter manage their portfolios.

I Our in-house tool looks for evidence of an improvement at a company level, which is not reflected in the valuation.

dentifying underappreciated change lies at the heart of the Jupiter Global Emerging Markets Fund investment philosophy.

‘We are looking for change on one of three levels. The first is structural, where there is significant long-term change, for example, rising penetration of a company’s products or services,’ explains fund manager Ross Teverson.

‘The second is industry change, for example, when an industry is becoming more consolidated or seeing improved pricing power. Finally, we also look for companyspecific change, which could be down to capital management or a new product offering,’ he adds.

In Teverson’s opinion, the market can be inefficient at pricing in change in emerging markets as a result of investors’ preoccupation with the next piece of macro, political or economic news flow.

‘While we have more market participants and information than we did 20 years ago, in many ways markets have become less efficient because there seems to be more of a short-term mindset,’ says Teverson.

As the fund is benchmark-agnostic, the team has the freedom to target investment opportunities across the market spectrum.

They select from an investment universe of over 4,000 companies, initially using a quantitative monitor to identify stocks that

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look cheap, where there could be potential for positive change.

‘Our in-house tool, called the “quant change monitor”, ranks our investable universe, looking for evidence of an improvement at a company level, which is not reflected in the valuation,’ Teverson adds.

The team then undertakes a fundamental analysis of these businesses including site visits, conference calls and company management meetings, as well as a review of structural and industry changes. Each year, the team conducts around 1,000 company meetings.

Finally, they examine the catalysts that are likely to enable the change to be realised by other investors. These typically include sales data and earnings announcements.

The team member who is responsible for the stock idea has to outline the investment case in a research note that is then presented to the rest of the team for in-depth peer review.

Teverson, as manager of the emerging markets equity portfolios, is then responsible for making the final decision about whether the stock will go into the portfolio.

Last year, Sberbank was added to the Jupiter Global Emerging Markets Fund after the team identified positive change that they believed wasn’t appreciated by the market.

The Russian financial services company appeared on the team’s radar because of its improved dividend payout ratio –

something that Teverson describes as the ultimate signal of an alignment of interest between shareholders and management.

‘Another surprising element was one of improving costefficiency and the adoption of technology,’ Teverson says.

He was impressed with the way that Sberbank was using technology to drive cost-efficiencies, unlike some state-owned enterprises. For example, the business replaced half of its in-house legal staff with software that carries out conveyancing work for property-related loans during 2017.

Meanwhile, the indiscriminate sell-off in emerging markets that followed the election of Donald Trump as US president in November 2016 provided the team with an attractive entry point for Vesta, a company which builds and leases individual properties to a range of multi-national companies.

‘The key message from management was there had been no fundamental impact on the business, despite the

negative rhetoric coming out of Trump,’ he explains.

‘As a result of the market correction, we were able to buy the company at a significantly lower valuation than it had been over the past few years. The change that we identified was one of continued growth in the Mexican manufacturing base,’ Teverson adds.

It is this bottom-up approach to identifying underappreciated change that helps the team find stocks that they believe will add value for investors over time.

Risks The fund invests in emerging markets which carry increased volatility and liquidity risks. The fund invests in smaller companies, which can be less liquid than investments in larger companies and can have fewer resources than larger companies to cope with unexpected adverse events. As such price fluctuations may have a greater impact on the fund. n

DISCLAIMER This fund invests mainly in shares and it is likely to experience fluctuations in price which are larger than funds that invest only in bonds and/or cash. The Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request.

This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Company examples are not a recommendation to buy or sell.

The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances.

Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.

Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ are authorised and regulated by the Financial Conduct Authority.

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THE GLOBAL ECONOMY: WHAT’S GOING ON? RSMR Director, Ken Rayner takes a look at current worldwide activity and how trade tariffs and Brexit are dampening economic activity.

F

ears about the threat of US trade wars with China and Europe after the imposition of tariffs has dampened economic growth forecasts in the last three months but the global economy is progressing steadily with no immediate threat of recession.

While some investors suspect that global GDP growth has peaked, strong US economic data shows expansion linked to lower unemployment and that tax cuts are starting to have a positive effect. Trade wars and tariff increases will undoubtedly put pressure on these but, for the time being, the US continues to drive global growth.

Ironically investors hope China will provide stability in an uncertain market. However, China has loosened monetary policy by cutting the amount of cash that commercial banks must hold against customer deposits.

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THE ASSET CLASSES – a quick round-up Equities Some confidence returned to global stock markets in second quarter of 2018 with most delivering profits.

Some financial commentators feel that overall uncertainty requires a more defensive outlook.

If this leads to the withdrawal of financial assets, it could result in a weaker Yuan and a currency war on top of a trade war would not be good for the global economy.

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Brexit is also affecting Europe where it has combined with uncertainty about future European Central Bank plans to scrap quantitative easing after years of unconditional support.

However, there are some anomalies. While markets have performed very well since 2009, valuations have remained extremely high despite greater international tension and market volatility.

This should cause greater financial market jitters but the MSCI Index is up more than 10% over the last 12 months and the number of comments forecasting market falls has reduced significantly, suggesting investors may be complacent after a long positive period.

Is this the start of an unexpected improvement in stock markets’ performance before healthy growth evaporates? No one can predict this but many investors have

increased cash and defensive holdings believing that markets are overpriced and due a correction.

Even so, most markets remain positive, except emerging markets that have sold off a little based on the stronger dollar and recent negative returns from India and China.

Several unique factors are affecting the UK’s growth potential, especially the Brexit negotiations. The Bank of England’s decision to hold interest rates supports the belief that growth and inflation are not strong enough to withstand further rises.

Fixed Interest A puzzle for many strategists and defensive investors is how best to position portfolios for different scenarios.

Returns from bonds have been surprising as despite rising rates, losses have so far been limited. This is more obvious in western markets such as the US. Unless we have an unexpected event, a fall in rates looks unlikely so there is no benefit from keeping medium and long-dated assets, particularly in the government bond sector.

We have been in a long period of global growth which some believe is coming to an end, despite the strength of the US economy. If this turns out to be right, holding secure assets, such as government debt still makes sense for diversification purposes.

If, as many economists predict, western economies introduce further rate rises, then government and investment grade credit holders may suffer capital losses but, if rates peak at say three per cent, investors may prefer to hold fixed rate assets for their defensive characteristics.

Investors should ensure that they have diverse portfolios and not dismiss fixed interest assets because of potential monetary tightening - they can be safer than many others if global markets become stressed.

Property Although property has fallen from favour in recent years, it should have a presence in a diversified investment portfolio due to its links to other asset classes.

The UK commercial property market remains solid and stable. Distribution and logistics properties, such as large warehouses, remain popular due to the rise in online shopping and demand for the most convenient means of delivery or collection from local stores.

Investors should keep a close eye on interest rate rise forecasts as further US rate rises are expected but not necessarily factored in.

If investors recognise the stability of future income and can take a longer-term view, then property has a significant role. It is still viable within a diverse portfolio, especially while interest rates and bond returns are low.

Global round-up l US consumer debt is higher than before the financial crisis. l The Japanese economy had better-than-expected first quarter growth l Emerging market assets have seen a reversal with economic problems in Argentina and Turkey. l Asian markets have been weaker from both an economic and market perspective l British Chamber of Commerce has cut UK GDP forecasts to 1.3% from 1.4% for 2018. l A survey in May showed that 95% of US top chief executives saw foreign trade retaliation as a ‘moderateto-serious’ risk. l US economic growth forecasts remain at around 4% l In the UK, fears over Brexit have eaten into consumer and corporate confidence l European Central Bank (ECB) reports a notable pickup in lending data.

SO, WHAT’S NEXT? There have been much larger variations in returns from different asset classes and markets in recent months than for the last couple of years.

A strengthening US dollar, tightening monetary policy and greater risks from international relations, including Brexit, have influenced the winners and losers.

Although there have been no major setbacks and markets have mostly seen positive returns, some financial commentators feel that overall uncertainty requires a more defensive outlook.

Global growth forecasts for 2018 remain at around 4%.

In June the US Federal Reserve raised interest rates for the seventh time since 2015, and the European Central Bank said it would end its Euro 2.4tn bond buying in December.

This is enough to explain greater market volatility although, outside the US, interest rates are well below neutral.

The rest of 2018 may give us a clearer picture about how strong the global economy will be in the next 12 to 18 months.

Meanwhile, looming trade disputes and Brexit will be a focus for markets for the rest of the year. n

www.rsmr.co.uk Autumn 2018

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WHY MULTI ASSET FOR INCOME?

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ncome-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

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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.

Source: Bloomberg as at 30 April 2018

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.

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 highest yielding 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.

INVESTMENT RISKS 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.

IMPORTANT INFORMATION This article of for Professional Clients only and is not for consumer use.

Source: Bloomberg as at 31 March 2018

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. n ¹Cash is defined as 3-month LIBOR ²Before deduction of corporate tax ³Net of fees ⁴We 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 ⁵MSCI World

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.

www.rsmr.co.uk Autumn 2018

Invest

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CYBER-RISK: HOW INVESTORS CAN PREPARE FOR THE UNPREDICTABLE

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igital data has grown exponentially in recent years, spurred by increased penetration of mobile devices and consumption of online services. The rapid expansion in the volume of data companies store, many of which are relatively new to data management and security, has attracted cyber criminals

employing increasingly sophisticated tools and techniques. Cyber crime costs global companies around 60% more than it did only five years ago, whilst in the US, that number has risen by over 80% (see chart). No company can afford to ignore the threat, and regulators such as the UK’s Information Commissioner’s Office (ICO) are stepping up enforcement actions. Their response represents the tip of the iceberg the problem represents.

Source: ico.org.uk, Accenture & Ponemon Institute's 2017 Cost of Cyber Crime Study, Cisco Global Cloud Index

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What does cyber risk mean?

Cyber risk is a broad term. For most people, it represents the risk of loss or harm from breaches or attacks on information systems. That loss can take many forms, including direct financial costs, reputational damage or operational continuity. Recent high profile breaches (WannaCry, Petya, Equifax etc.) have served to further raise awareness on the issue, in turn attracting regulatory scrutiny. Data privacy is commonly associated with cyber risk, and is a centrepiece of the EU’s General Data Protection Regulation (GDPR) regulation, which came into force in May 2018.

Why should investors care?

Cyber is an increasingly critical source of business risk, especially for companies with important intangible assets such as brands, customer relationships or technology. The negative impact a data breach can have on a brand link straight to companies’ competitiveness, future revenues and future cash flows. Data breaches often uncover poor governance practices and weak management; changing people or policies is quick but re-establishing market and customer trust take much longer.

An engagement approach In our view, investors should focus on understanding how well a company prepares for cyber events. The depth of its approach should give confidence that when (not if) a breach occurs, processes and resources are in place to minimise the impact on operations and ability to create value.

We believe direct company engagements are the best way to gain insights. We have delved into the topic focusing on a few main areas: l Governance: assess how well cyber risk is understood by the board

board. The security team should also leverage specialised external expertise on a regular basis to stay on top of new threats and security tools. Internally, the team should have direct ownership of specific technological tasks such as penetration testing, security patches etc. l Board level responsibility: the board should have specific expertise to evaluate whether the company has the appropriate operational and managerial resources to mitigate cyber risk.

The analysis of a company’s level of expertise and board responsibility provides our analysts and fund managers with a basis on which to structure their questions of management teams, and to benchmark responses against peers.

In addition, the engagements have changed our understanding of a few areas usually thought of as important, but which most companies disregard. For instance, our discussions highlighted the weaknesses of focusing on ISO27001 (an IT standard that best-inclass companies implement internally), cyber insurance (current products offer limited coverage) and policies on cyber/data protection (while important for compliance purposes, they appear less helpful in actually managing cyber risk).

Conclusion: targeted engagement Cyber is an increasingly important risk for every organisation. As investors, we need to gain a deeper understanding into how well companies held in our clients’ portfolios are prepared to manage this risk.

We believe targeted company engagement is the most effective way to gain insights into key areas such as top-level risk governance and technical expertise, where investors might be able to identify unsuitable practices before they materialise.

l Expertise: does the company have the internal capabilities to manage cyber risk? Is it drawing on specialist skills from outside the organisation? l Technological: has the company adopted best practices from a technical standpoint?

Recognising that cyber risk is relevant to many business models, we have engaged with Chief Information Security Officers (CISO) or Data Protection Officers (DPOs) at ten companies Schroders invests in, across sectors such as financial services, technology and telecoms.

Main findings: expertise and board responsibility We believe the key areas are: l Expertise: it is critical that the company has a wellresourced and specialised cyber security team, managed by a CISO/DPO, reporting preferably to the CEO or the

www.rsmr.co.uk Autumn 2018

Invest

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A ONCE IN A MULTI SHIFT IN THE GLOBA

Gary Robinson is an investment manager in the US Equity Team.

He joined Baillie Gifford in 2003 and spent time working on our Japanese, UK and European equity teams before moving to the US Equities Team in 2008. Gary is comanager of the Baillie Gifford American Fund, and Lead Manager of the Baillie Gifford US Growth Trust PLC. He has been CFA qualified since 2006.

F

or several years Baillie Gifford’s investors have been discussing the possibility that we are witnessing a once in a multigenerational shift in the global economy. As time has passed, we are increasingly convinced that this is so and there is much more still to come.

The pattern of disruption and evolution that we have witnessed in retail and advertising over the past 20 years appears to be spreading into previously immune and unrelated industries. Industries as diverse as healthcare, transportation, energy, finance, industrials and even the way we consume food are all evolving rapidly.

What is driving this mass disruption?

There are multiple factors, including the convergence of the internet and the cloud and the ongoing shift to mobile devices. Rapid progress in the areas of ‘big data’, machine learning and genomics are beginning to bear fruit. Price declines in solar and wind power and falling costs in lithium-ion batteries are making clean energy and electric vehicles more competitive than their fossil fuel counterparts. Over the next decade and beyond, this will be underpinned by both the continuation of Moore’s Law (which anticipates computing power doubling every two years), and the rise of China as a global superpower, which will push innovation to new levels across the globe.

Although very short term, our most recent quarterly results for the listed portion of the Baillie Gifford American Fund help to demonstrate the breadth and depth of growth we are seeing across the companies we invest in. The median revenue growth rate in the portfolio was 26%. A third of the companies in the portfolio by weight are growing revenues by at least 40% year-on-

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year. Amazon for example, has accelerated its revenue growth from around 20% in 2014 to 30% at the end of 2017. History would tell us that growth rates of this level should not be, given these companies market caps, but they are. And it is not just the large internet network businesses that are at the top of the revenue growth table. Over the previous year, we have witnessed a wide variety of companies growing their revenues above the portfolio’s median level: Interactive Brokers in finance; New Relic in software; Wayfair in home furnishings, to name a few.

Despite the inevitable turbulence in the short term, we look forward with optimism. In a US context, we believe the world’s largest and most innovative economy will continue to create many of the world’s most exciting growth companies; companies that exhibit a distinctive culture, large growth opportunity and sustainable competitive advantage that will ultimately disrupt large swathes of the market. Our sole focus is to find them when they are under-appreciated (relative to their potential) and hold them over the long term, secure in the knowledge that, ultimately, markets are driven by company-level fundamentals. That much will not change.

I-GENERATIONAL AL ECONOMY Despite the inevitable turbulance in the short term, we look forward with optimism.

IMPORTANT INFORMATION For financial advisers only, not retail investors. As with any investment, your clients’ capital is at risk. All data is source Baillie Gifford unless otherwise stated. The information contained within this article has been issued and approved by Baillie Gifford & Co Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is a unit trust management company and the OEICs’ Authorised Corporate Director.

The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research. Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.

www.rsmr.co.uk Autumn 2018

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AGENTS OF CHANGE: THE TRENDS CHANGING THE FUTURE OF INVESTING

F

ifty years ago, the idea of carrying around a super computer in our pockets would have defied credibility.

Now, with the global uptake of smartphones, access to phenomenal computing power and an ‘online’ world is a mere commonplace. Semi-autonomous cars – another staple of science fiction – are a fixture on our streets. Elsewhere, the creation of ‘next generation’ cities, means that for the first time, through the magic of big data and connectivity, cities are able to ‘talk’ to us and regulate their own energy consumption. .

Meanwhile, deep social and demographic change continues to both boost and buffet markets. The rise of a global middle class remains a major influence on capital flows and spending patterns. In the developing world, countries are having to box ever smarter to meet the healthcare needs of their growing and increasingly affluent populations. Populist politics too are having an effect: witness the growing calls for trade protectionism and its likely impact on billions of lives.

Experts from across BNY Mellon offer their views on what they consider to be the most important agents of change today, how they might affect global markets and what they mean for investors. n

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l Find out more about the agents of change and the opportunities these will create by visiting: www.bnymellonim.com/aoc-uk

FOR PROFESSIONAL CLIENTS ONLY. Any views and opinions are those of the author, unless otherwise noted and is not investment advice. This is not investment research or a research recommendation for regulatory purposes. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries.

Issued in the UK 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. INV01410 Exp 4 Dec 2018.

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.

Jason Borbora, Assistant Portfolio Manager, Investec Diversified Income Fund

WHAT TO DO AS THE LIQUIDITY TAPS CLOSE?

S

ince the global financial crisis, capital markets have experienced unprecedented injections of liquidity through massive asset-buying programmes implemented by developed market central banks, which ‘created’ money to make these purchases. This has entailed an unprecedented expansion of central bank balance sheets. The combination of QE and low interest rates has kept yields on short-maturity assets low or negative, despite an apparently strong economic backdrop.

This has supported the performance of many asset classes and put many investors on the well-documented ‘search for yield’.

Are market participants prepared?

As these programmes begin to unwind and the liquidity taps close, we wonder whether market participants are prepared. We worry that financial markets may be ill-prepared for this enormous change.

Investors tend to focus on how a reversal of QE must lead to rising government bond yields (falling prices) as the supply/demand dynamic suddenly reverses. We think a singular focus on this dynamic and its effects on yields and prices is a limited view. It does not take full account of the potential ramifications, including: l l l

the attractiveness of cash a fall in the power of diversification a broader withdrawal of liquidity results in volatility.

For the first time in nearly a decade, cash rates have begun to look attractive. As the Fed runs down the asset side of its balance sheet, the ‘reserves’ available to the US banking system (which sit on the liability side) will reduce in lock step, draining liquidity from the financial system. It is difficult to know at which point the resulting scarcity of access to money for the banking system might become too much, but if it does, this would put upward pressure on short-term interest rates to increase a willingness to lend. An increase in short-term interest rates marks a relative return of attractiveness for a long-forgotten asset class – cash.

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Simple diversification may not be enough In an environment of rising cash rates, the correlation (a measure of the degree to which the returns on assets appear to move in the same direction) between government bonds and equities increases. Investors who rely on ‘naïve’ concepts of diversification could then lose money on their equity and bond holdings simultaneously.

Constructing portfolios as liquidity retreats How should investors prepare for the risk of ongoing liquidity shocks? We believe there are three key levers we can pull, and we have embedded these levers in the Investec Diversified Income Fund’s investment process: 1. Bottom-up selection of individual assets.

2. Structural diversification, based on how assets behave, not their labels.

3. Robust drawdown management.

We believe in focusing on individual asset selection, diversifying portfolios based on asset behaviour, not traditional labels, and taking a sophisticated and energetic approach to managing drawdown risk. n l To read this article in full and to find out more about the Investec Diversified Income Fund, please visit www.investecassetmanagement.com/DIF

IMPORTANT INFORMATION This communication is for institutional investors and financial advisors only. It is not to be distributed to retail customers This communication is provided for general information only. The information may discuss general market activity or industry trends and is not intended to be relied upon as a forecast, research or investment advice. There is no guarantee that views and opinions expressed will be correct. The investment views, analysis and market opinions expressed may not reflect those of Investec as a whole, and different views may be expressed based on different investment objectives. It is not an invitation to make an investment nor does it constitute an offer for sale. Bond and MultiAsset funds may invest more than 35% of their assets in securities issued or guaranteed by an EEA state. The full documentation that should be considered before making an investment, including the Prospectus and Key Investor Information Documents, which set out the fund specific risks, is available from Investec Asset Management. © 2018 Investec Asset Management, which is authorised and regulated by the Financial Conduct Authority, September 2018.

INVESTMENT CONFERENCE AND AWARDS Registration for RSMR's 2018 Harrogate Investment Conference and R Awards is now open – go to rawards.co.uk

W

e hope you can join us at Rudding Park Hotel, Harrogate, on Wednesday 21st November as we hear from 20 leading fund managers sharing their views in a series of presentations and panel debates.

Here you will get to hear their views on the global macro outlook, and where to find income, together with a discussion on the role of ESG as a guiding investment principle.

In the evening, we will hold our networking dinner and the R Awards. The R Awards recognise those fund managers and fund groups that our investment team, through quantitative and qualitative research, believe to have achieved consistently superior results for their investors.

Our after-dinner speaker this year is journalist and former MP Matthew Parris. The awards shortlist will be announced soon.

To register, please visit the event website – www.rawards.co.uk.

We look forward to seeing you in November. n

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The Global Income Fund eight years on.

Our hunter has certainly left his stamp on the sector.

I

F ONE THING characterises Jacob de Tusch-Lec, it’s sticking power. He’s been posting impressive results since launch in 2010. And in all this time his approach

has remained remarkably consistent. Carefully selecting Profits that show signs of steady growth, rather than just paying short term dividends. Hunting across borders without constraint. If you’d like to find out more about this extraordinary Profit collector, do get in touch. You’ll find all the details – and addresses – you need below.

% 250

RANKED 1 SINCE LAUNCH* Artemis Global Income MSCI AC World NR GBP Sector average

200

150

100

50

0 Jul 2010

Feb 2012

Oct 2013

May 2015

Dec 2016

Jul 2018

Past performance is no guarantee of future returns. *Data from 19 July 2010. Source: Lipper Limited, class I distribution units, bid to bid in sterling to 31 July 2018. All figures show total returns with dividends reinvested. Sector from 1 January 2012 is IA Global Equity Income NR, universe of funds is those reporting net of UK taxes.

A

0800 092 2090

salessupport@artemisfunds.com

artemisfunds.com/gif

THIS INFORMATION IS FOR PROFESSIONAL ADVISERS ONLY. The value of investments will fluctuate. The fund may have investments concentrated in a limited number of companies, industries or sectors. The fund may invest in emerging markets. The fund may invest in the shares of small and medium sized companies. The fund’s annual management charge is taken from capital. Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit artemisfunds.com/third-party-data. Third party endorsements are not a recommendation to buy. For information, visit artemisfunds.com/ endorsements. Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority. For your protection calls are usually recorded.

A POSTCARD FROM HONG KONG SEPTEMBER 2018

RSMR Director Graham O'Neill tells us his experiences during his trip across Asia to speak to fund managers about their perspectives on emerging markets.

Chinese consumers buy similar things to the West, but with a local twist and have adopted mobile Internet technology far quicker and more extensively than in the West.

A

rriving in Hong Kong, I soon met with Fidelity, who have a number of excellent fund offerings in Asia with both broad regional and more specialised mandates. Teera Chanpongsang took over the Asia fund in January 2014 and has since then delivered consistent outperformance to investors.

Whilst primarily a bottom up stock picker, Teera has clearly had to take account of the threats to certain businesses posed by the escalation of the US/China ‘Trade War.’ A change in sentiment towards Asia has resulted in many stocks that have performed well over the previous 12 months suffering from profit taking and Teera added he had looked at stocks in terms of worse case scenarios from the impact of across the board tariffs. Tariff costs are likely to be split between a hit to the Chinese currency, a hit to manufacturers and higher costs for the US consumer. Some Chinese companies will respond by moving production to Vietnam or other lower cost countries currently not subject to tariffs. As a result of greater market uncertainty Teera has increased exposure to higher quality names such as AIA, the Pan Asian insurer and HDFC in India.

The Fidelity China Consumer fund is a much more specialised mandate and is very much focused on capitalising on increased levels of consumption in China and has been a beneficiary of the strong growth in disposable income since the Financial Crisis. The fund invests in both what China consumers buy and the way China consumers buy and certainly is not a generic China fund. Urbanisation

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will continue to be a driver of increased levels of prosperity in the country.

Chinese consumers buy similar things to the West, but with a local twist and have adopted mobile Internet technology far quicker and more extensively. Within services travel and leisure are an objective of many Chinese people and there is also much higher spend on education for children.

Financial services remain underpenetrated and are likely to continue to grow strongly for a number of years.

After an extremely hot but sunny Saturday offering outstanding photo opportunities from the Peak, Sunday saw Hong Kong hit by Super Typhoon Mangkhut the world’s most powerful storm to date in 2018, which saw more than 1,000 trees come down leaving more than 600 sections of roads blocked and some over ground train services suspended. All flights in and out of Hong Kong were suspended on Sunday. This was the strongest Typhoon to hit Hong Kong this year and one of the strongest to hit over the last decade. After an eventful few days it was on to Singapore, my next destination for a further round of fund manager visits. n l Read Graham’s full travel blog on the RSMR Hub: www.rsmr.co.uk/ideas/rsmr-blog/hong-kong/

Risk and suitability in a perfect ‘10’

Synaptic Modeller is now available with 1-10 risk categories as well as 1-5, defined by Moody’s Analytic’s asset allocations

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Synaptic Risk Ratings are now accessible on the RSMR portal, as well as in Synaptic Product and Fund.

Call now for more information on 0800 783 4477 or email us at sales@synaptic.co.uk

John Bilton, head of the Global Strategy Team for the Multi-Asset Solutions Group

CYBER-RISK: HOW INVESTORS CAN PREPARE FOR THE UNPREDICTABLE

O

ver the past 200 years, the global economy and labour force have proved effective at adapting to disruptive technology, but the current wave of technological change is marking out new territory.

Today, workforce automation and artificial intelligence (AI) are automating brains as well as brawn, advancing at unprecedented speed and scale across many parts of the economy. Thus, we cannot assume that displaced workers can be easily redeployed to new functions, with profound implications for economic growth and the labour force.

Moderate estimates suggest a reasonable upper bound to world GDP gains from automation of 1-1.5 percentage points by 2030, but only if displaced workers are efficiently re-employed elsewhere. Driverless cars offer a prominent example. If half the nearly 5 million U.S. jobs in the ground transportation sector are automated over the next 20 years, and those displaced workers are redeployed at average productivity, the incremental boost to U.S. GDP would be almost 0.1%.

Ageing nations such Europe and Japan may benefit from a boost to trend growth rates as automation offsets shrinkage in the labour force, narrowing the spread of growth rates across developed economies.

Optimistic on productivity

Reskilling key to upside

Despite promising technological advances, productivity growth seems to have stalled since the financial crisis, leading many experts to reduce their optimism for future growth. However, we do not believe productivity’s heyday is behind us. Instead, we foresee a lag effect over the next 10-15 years, where productivity growth should coincide with widespread adoption of specific breakthroughs.

Given the scale, speed and spread of change, it’s clear that human skills must keep pace for economies to benefit from automation.

Although routine physical jobs remain at highest risk, many white-collar jobs will also be affected. The least vulnerable will be jobs requiring interpersonal skills and expertise, such as sales, communications, creative arts, culture, healthcare and management.

Government response matters Long-term growth impact more complex Estimating the impact of automation on trend GDP is more complicated, due to uncertainty over whether rapid adoption can concurrently deliver rising wages and productivity.

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Government will play a fundamental role in preparing the labour force for automation, through policies on education and training, and tax incentives for investment in human skills. Spreading economic gain more evenly

FIVE TECHNOLOGIES ARE MOST INVESTIBLE TODAY We believe there are five areas where the early effects of technological change offer investment potential today.

Blockchain technology Cloud computing

Robotics

The internet of things

will be equally important for social and political stability, and to protect consumer purchasing power. Given the potential for more consumers to be out of work or facing lower salaries, growth in consumer demand in line with productivity cannot be taken for granted.

To balance these needs, we expect governments to avoid extreme policy. A laissez-faire approach risks persistent wage pressure and swelling populism, while excessive redistribution risks capital flight.

Muted early economic effects Despite the early stage of adoption of automation and AI, we believe we will start to see limited impact from productivity gains on asset returns and equilibrium interest rates over the next 10-15 years.

If the predicted productivity boost of 1-2 percentage points materialises, and technology effectively offsets population decline in some developed nations, we could see annualised developed market growth and equity returns more than a full percentage point higher than assumed in our Long Term Capital Market Assumption (LTCMA) forecasts. Moreover, the dispersion in equity return between developed and emerging markets has scope to narrow meaningfully.

The effect on equilibrium interest rates may be more nuanced, however, as the offsetting forces of increasing productivity pushing up growth, and decreasing labour bargaining power pulling down inflation, hold yields in line with current forecasts.

Based on the early effects on the global economy, we believe that these are the sectors to watch for positive returns. n

Autumn 2018 www.rsmr.co.uk

Artificial intelligence

l Interested to learn more? For more insights on current investment themes and J.P. Morgan Funds, please visit jpmorgan.am/ltcma-2018

FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy.

They may be subject to change without reference or notification to you.

It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance is not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. Our EMEA Privacy Policy is available at www.jpmorgan.com/emea-privacy-policy.

This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446.

Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a8235d147

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One of the central dynamics of equity market performance in 2018 has been a continued preference for glamorous technology and growth stock.

DIVIDENDS — UNLOVED, OUT OF FAVOUR AND COMPELLING! Nick Watson, portfolio manager within Janus Henderson’s UK-based Multi-Asset Team, explains the rationale behind investing for income in reassuringly boring and out of favour household names.

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arkets 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.

Short term volatility masking compelling yields This is best illustrated in the UK. The FTSE 100 itself suffered a 10% drawdown in the first

Chart: dividend yield indications for FTSE 100 entities with the biggest dip in 2018

Source: Bloomberg, as at June 2018 Notes: Companies in FTSE 100 Index that are over £10 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.

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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).

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*).

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 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. *Source: Bloomberg, as at 2 August 2018

l 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 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.

www.rsmr.co.uk  Autumn 2018

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A MULTI-ASSET APPROACH TO INVESTING Multi-asset funds can also be more cost effective and can free up time to spend on tasks that provide added value for clients.

RSMR Investment Research Manager, Patrick Morris offers a framework to help IFAs over the maze of mixed-asset investing.

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ulti-asset funds have become increasingly popular as a one-stop solution for investors seeking diversification via a single fund. These funds typically comprise equities, fixed interest and cash and some will also provide exposure to property and other alternatives.

Ultimately, they rely on a professional manager to use their expertise to find the right balance of diversification in the fund.

This article looks at why financial advisers are using multi-asset solutions, and outlines some issues to consider when choosing a multi-asset fund.

Financial advisers have traditionally created portfolios for clients by blending together a selection of single-strategy funds, but this creates a number of issues. The due diligence required can be a burdensome task, given the number of funds and sectors available, and portfolio construction requires skilful asset allocation and fund selection to ensure adequate diversification.

A comprehensive review process is also required in order to monitor the portfolios on an ongoing basis. Given these issues, advisers are increasingly acknowledging the advantages of outsourcing this specialist discipline, and one solution is multi-asset funds. Multi-asset funds can also be more cost effective and can free up time to spend on tasks that provide added value for clients.

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According to data from the Investment Association (IA) in July 2018, the total assets under management in mixed-asset funds was £145bn. This incorporates the following IA sectors – Mixed Investment 0-35% Shares, 0-60% Shares and 40-85% Shares, UK Equity and Bond Income and the Flexible Investment sector. When we include the IA Volatility Managed sector (£27.6bn), we can estimate that multi-asset funds account for circa £173bn or nearly 15% of the total UK fund universe. There are nearly 700 funds listed in the sectors above which is approximately 20% of the overall universe.

So how does an adviser choose the most suitable?

Multi-asset funds come in various forms and the chart below offers a framework to help advisers identify the key characteristics and differences between these funds:

Risk Targetted Return Focused

1 4

Fund of Funds Direct Securities Traditional vs Alternative

Active Passive Blend

2

3

Single Manager Multi Manager

1. Investment Objectives Multi-asset funds tend to be either ‘risk targeted’ or ‘return focused’. Risk targeted funds typically comprise a range, whereby each fund will have targeted volatility boundaries. These funds normally sit in the IA Volatility managed sector. Return focused funds aim to outperform a specified benchmark (e.g. CPI +3%) with risk being a secondary consideration. Income focused multi-asset funds are another type of fund with specified income objectives.

2. Investment Style The investment style can either be active, passive or a blend of both. This style bias determines the cost of the funds with an active approach being higher cost than a blend or passive approach. Passive funds tend to follow long-term strategic asset allocations closely as opposed to active managers who will implement short-term tactical tilts.

3. Investment Method Funds can either take a ‘single manager’ approach whereby one fund manager will manage all the investments in the fund or a ‘multi-manager’ approach where the fund will invest in different fund managers across asset classes. Multi-manager funds can be implemented through separate mandates with sub-fund managers, or through a ‘fund of funds’ structure. Fund of funds may be either fettered, whereby the manager will only use internal funds or unfettered, whereby they will invest in external funds.

4. Underlying Exposure Some funds may use actives only or passives only or a blend of both. Other may focus on direct holdings in equities or fixed income securities for example, or combine direct holdings into their ‘fund of fund’ structures. There are also asset class variations in that some funds will have a traditional split between equities and fixed interest only while other funds will include alternative asset classes such as property, commodities, infrastructure or derivative based strategies.

In selecting multi-asset solutions, an adviser must first consider the risk appetite and return objectives of the client – whether a fund is ‘risk targeted’ or ‘return focused’ could be the starting point. The funds available cover a wide range of risk profiles and this too can be used to help narrow the universe. Many are mapped to a risk profiling provider which can be useful when comparing funds. Cost is important and varies widely, driven mainly by the underlying holdings in the fund. A cost-conscious investor may be more suited to a passive or blended approach which includes direct exposure or even a fettered fund of funds. A more sophisticated client may be willing to accept higher charges for this style of investing. It can be appropriate to blend a number multi-asset solutions in a client portfolio to optimise the benefits from a range of investment styles. Selecting suitable multi-asset funds and managers still requires a high level of due diligence, but there are inherent advantages to this approach which may be more suitable for certain advisory businesses depending on their underlying clients. n l RSMR provide specialist portfolio services for multiasset solutions. We rate a number of fund ranges and multi-asset funds. For more information visit www.rsmr.co.uk.

www.rsmr.co.uk Autumn 2018

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For Investment Professionals only

Don’t be side-tracked by market noise Steven Andrew Fund Manager M&G Episode Income Fund

We see market noise, or the volatility in asset prices that occurs from the regular ebb and flow of news and events, as a source of investment opportunities.

By focusing on fundamentals such as interest rates, company earnings and inflation, we can invest when asset prices have moved away from what we believe are appropriate valuation levels.

Whilst 2017 was relatively calm and asset prices made steady progress, 2018 so far has been more like 2016, with political noise dominating. This year, investors have had to navigate political turmoil in Turkey and Italy, as well as an increasingly bellicose Donald Trump and growing trade tensions between the US and its’ trading partners. Consequently, asset prices have been seesawing, and although US equities have posted a positive return, many other stockmarkets are in negative territory.

Our investment approach, which we have used for over 15 years, combines a robust valuation framework with elements of behavioural finance. We seek to identify instances or ‘episodes’ where investor behaviour has moved asset prices away from what we believe are appropriate valuation levels – the current political noise is a good example of this.

We seek to take advantage of these emotionally-driven misalignments by establishing asset positions that can benefit from prices moving back towards more rational valuation levels. We invest globally through a variety of assets including equities, government bonds and corporate bonds.

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

Investors should note that past performance is no guide of future performance.

SECTION HEAD

Global banks look particularly attractive

over 10 years) US Treasuries. As well as offering a yield of around 3%, they can also act as a well-priced diversifier against movements in share prices.

At current levels, global equities offer attractive returns, in our view. The economy is growing–although the rate of expansion has moderated since the second half of 2017 – and interest rates are supportive.

In times of market stress – for example, a global slowdown or the prospect of a slowdown–when equities might be expected to perform poorly, US Treasuries would be expected to rise in value as yields fell; the opposite is also true.

Whilst we like equities in general, we are particularly keen on banks, some of which are supported by strong fundamentals (low earnings multiples and growing profits) and are potential beneficiaries if there is an upward shift in interest rate expectations.

In Europe, the banking sector is especially attractive, as share prices having been adversely affected by political noise in Italy and Turkey. Also, expectations for interest rate rises have been pushed further out (a negative for banks), despite the eurozone expanding at a comfortable pace.

Japanese banks are benefiting from the strong global economy, which is a tailwind for the domestic economy and corporate reforms. The reforms, which have been driven by a political dynamic, apply to the broader market, not just banks. They have led to improved shareholder returns (dividends and share buybacks) and increased engagement between companies and shareholders.

Finally, we think US banks are also attractive, but the interest rate dynamic is less important. However, the sector still looks cheap relative to the broad market and benefits from the ongoing improvement of the economy.

Outside the banking sector, we can also find value in US technology stocks, domestic-orientated UK companies and Japanese shares in general.

US Treasuries a great diversifier In our view, rising US interest rates are nearer the end of their journey than interest rate cycles in other economies, which is why we like longer-dated (maturities

But this would be less true for UK gilts and German bonds, which are expensive and offer little upside potential, in our view. Both have negative real yields and are vulnerable to arise in interest rate expectations – something that cannot be ruled out, as both economies are doing reasonably well.

We like the government bonds of other European countries, such as Italy and Spain, which offer significantly higher yields than bonds, as well as emerging market sovereign debt – some of which offers attractive real yields.

There are some very compelling opportunities out there As investors, we need to take a step back and look at the bigger picture. We must focus on pertinent information, rather than getting sucked into short-term swings in sentiment. Despite the continuing market noise, our views on fundamentals – interest rates and company earnings – have not changed meaningfully. While there are risks, they are nowhere near as bad as valuations are implying, in our opinion.

If market noise settles down a little and the fundamental data comes back into focus, we expect some very attractive returns from certain areas of the market. We believe investors should be holding assets that are at a good price and will benefit from the underlying dynamic – that is, growth is fine.

Furthermore, investors should be positioned for an environment where there is an upside risk to interest rate expectations.

Visit www.episodeblog.com for more market perspectives from the M&G Multi-Asset team

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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 investment products. The company’s registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No. 90776. SEP 18 / 306904

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Maya Bhandari Portfolio Manager, Multi-Asset

THE FOUR HORSEMEN OF ASSET ALLOCATION

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e are broadly constructive on the outlook for global growth, expecting good, above-trend growth this year and next and only gentle rises in inflation across most major countries and regions. Our earnings expectations are relatively punchy, in particular for countries like Japan and Europe that are well positioned to benefit from the reflationary environment that we anticipate. Yet, there are risks aplenty on the horizon, which are increasingly being reflected across asset markets.

What really matters, and what doesn’t?

There are four chief risks that we are focused on: The ‘Four Horsemen of Asset Allocation’. These Horsemen – valuation, tighter monetary policy, labour dynamics, and geo-political risk – are shaping the way we invest across asset allocation portfolios, including the Threadneedle Dynamic Real Return Fund.

The Threadneedle Dynamic Real Return Fund, rated by RSMR, aims to achieve returns of inflation (UK CPI) +4% (gross), with up to two-thirds the volatility of equities. It is designed to participate in risk assets when opportunities develop and seeks to protect investors’ capital when threats appear on the horizon. We discuss some of these threats and how we are responding to them in this thoughtpiece.

Introducing the Four Horsemen:

Valuation/over-exuberance While bond yields might be low for good reason, a 35-year bull run has left core fixed income valuations frothy and return prospects low; as such, we are using duration

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sparingly in the Dynamic Real Return Fund. Equity valuations, meanwhile, have cheapened in the context of strong expected earnings (and mounting risks) today, but the ratio of equity PEs to two-year earnings growth expectations suggests that we are at levels that could signal longer-term caution.

We are therefore focusing on those equity markets most geared to our reflationary economic view – Japan, Europe and EM Asia – where we still see increasingly under-priced scope for margin expansion.

Tighter monetary policy For almost a decade, central banks have run super-accommodative policies and today, this is giving way to an outline of synchronised tightening. Yet financial conditions have been easing despite this policy shift, and we would expect central banks to continue tightening monetary policy until they get traction. Equities can perform smartly into a tightening cycle relative to other asset classes, so this isn’t yet a ‘red’ signal for us.

Long duration, however, looks vulnerable, especially in the context of the overexuberance described above and we are lightly positioned in such assets. Instead, we look to short-duration corporate bonds and cash-like assets to bring down portfolio volatility.

Labour dynamics With unemployment rates at multi-decade lows many regions, wage growth is emerging.

Without a pick-up in either productivity or inflation, wage growth becomes a straightforward squeeze on corporate margins: it is a transfer of wealth from shareholders to workers. The relationship between unemployment and wage growth

has been weaker this time around relative to the past.

However, with labour becoming scarcer, wages are starting to rise.

Geo-political risk This is a perennial issue that we spend a lot of time thinking about and we place greatest research emphasis on those risks that pass a market impact threshold. One risk on our radar is the potential escalation of trade wars and their impact on asset markets. With the chief impact likely to be ‘under the hood’ of company supply chains, the insights of our equity and credit colleagues have been vital. For instance, while Turkey has been the latest casualty of trade tensions – which could knock on to European banks with large exposures to lira assets – our credit specialists have emphasised the limited exposure from subsidiary ownership structures.

These ‘Horsemen’ are not all red lights for asset allocators: the economic outlook remains strong and equity valuations look fair in the context of strong earnings . We do see red flags on the horizon for core government bond valuations, however. At the same time these ‘Horsemen’ present an opportunity for active managers to exploit market inefficiencies. We believe that dynamically managed multi-asset strategies are well placed to navigate this uncertain terrain, and should deliver attractive levels of growth with limited volatility and drawdown compared with equities. n

FOR USE BY PROFESSIONAL AND/OR QUALIFIED INVESTORS ONLY).

Data as at 1 August 2018, unless otherwise specified. Your capital is at risk. Past performance is not a guide to future performance. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guaranty, or other assurance that any forward-looking statements will prove to be accurate. Threadneedle Opportunity Investment Funds ICVC (“TOIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a NonUCITS scheme. Subscriptions to a Fund may only be made on the basis of the current Prospectus, Key Investor Information Document, the latest annual or interim reports and applicable terms & conditions. Please refer to the ‘Risk Factors’ section of the Prospectus. Issued by Threadneedle Investment Services Limited,registered in England and Wales, No. 3701768, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom.

Authorised and regulated in the UK by the Financial Conduct Authority.

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