Adviser Top Three Talking Points
 
 

1. Multi asset key market highlights
 

Our strategists summarise market performance and the outlook for next month.

Global equities advanced over the month, as robust earnings results and better than expected economic growth bolstered investor sentiment.

US stocks moved higher after the US Senate passed a budget vote that lawmakers expect will pave the way to a tax overhaul deemed critical to Republicans’ prospects in elections next year. The US economy grew by 3% in the third quarter, beating forecasts of a 2.5% expansion.

European Commission president Jean-Claude Juncker said that the UK would need to pay its “divorce bill” before discussions can proceed on trade and future relations between the UK and the European Union. Meanwhile, the International Monetary Fund singled Britain out as a “notable exception” to an improving global economic outlook – slashing the country’s long-term growth outlook.

The European Central Bank reduced its quantitative easing scheme to a monthly pace of €30 billion from January with the option of extending it beyond September 2018. That amount is down from the current €60 billion-a-month buying pace.

The UK economy expanded faster than anticipated over the third quarter, increasing the likelihood of an interest rate hike at the Bank of England’s next Monetary Policy Committee meeting.

 

Strategist’s Outlook

 

In terms of regions, valuations remain expensive in the US and as such, we still believe that other regions remain more attractive.

As expected, the Bank of England has increased interest rates by 0.25 percentage points to 0.5% - the first rate rise since 2007. We believe this rate hike will be moderately negative to the UK’s economic outlook, especially to the consumption and housing sectors, and this could become a headwind factor for UK equities.

 

2.Vickers' video: Positioning portfolios for change

Senior Portfolio Manager David Vickers asks whether the second-longest bull market in history is coming to an end….and if so, how best to prepare.

 
 

3.Chart of the month: Benefits of diversification
 

With speculation about when the FED will increase interest rates, and the likely impact, see how different asset classes have responded to past rate rises.

There has been much speculation about when the FED will increase interest rates, and its impact on markets and asset classes.

This chart shows how different asset classes have responded to FED rate rises that are both greater than 1% (grey diamond) and less than 1% (blue triangle) over the last 37 years, with the blue bar showing average annualised return.

The key takeaway is that the results of different asset classes are mixed with equities performing well when interest rates rise, and bonds, conversely, and unsurprisingly, performing less well.

The orange bar at the end of the chart, shows Russell Investments Multi Asset Growth III (MAGS III), which incorporates both asset classes and more, indicates that performance, when FED rates rise, has been a lot more stable than standalone asset classes, with the triangle and diamond nearly overlapping to give a similar return to the annualised return.

 

RELATIVE MARKET RETURNS OVER ONE YEAR OF FED FUNDS RATE INCREASES

(Annualised % January 1980–March 2017)

 

Source: Equity: MSCI World Index, Bonds: Bloomberg Barclays Aggregate Bond Index; EM Eq: MSCI Emerging Markets Index (Jan 1988 – Mar 2017); REITs: FTSE NAREIT Equity Index, High Yield: BofA Merrill Lynch U.S. High Yield Index; EMD: JP Morgan Emerging Markets Bond Index (Jan 1992 – Mar 2017); Commodities: Bloomberg Commodity Index (Feb 1991 – March 2017); Gold: Bloomberg Commodity Gold Index (Feb 1991 – Mar2017); Gold Stocks S&P Gold Stock Index; Balanced: 50% Stocks, 30% Bonds, 5% REITS, 5% High Yield, 5% EM, 5% Commodities

Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

 
 

Adviser Top Three Talking Points
 


 

1. Market Review
 

Global stocks started the month on a downward trajectory as China-US trade tensions continued to dominate headlines. However, global indices rebounded, boosted by broad strength in commodities and a strong start to earnings season.

US president Donald Trump threatened China with an additional $100 billion in tariffs on the country's products. However, in a statement, the president said the US is still prepared to negotiate with China.

Bank of England governor Mark Carney said that mixed UK economic data and uncertainty surrounding the Brexit process is featuring in the Monetary Policy Committee’s thinking - casting doubt on market expectations for a rate hike at the next MPC meeting in May.

According to a preliminary reading, the UK economy grew slower-than-expected in the first quarter of 2018 (0.1% vs 0.3% QoQ exp.). This was the weakest growth rate since the 0.1% contraction in the fourth quarter of 2012, as construction output fell sharply and manufacturing rose at a slower pace.




 

2. Active management during Q1 volatility

Volatility may have rattled investors’ nerves during a rocky first quarter for markets, but did those with their assets in the hands of an active manager sleep better at night?

The results from our quarterly survey of active management performance suggest the answer is yes.

We reviewed 1,200 institutional money manager products monitored by our global equity research team during the first three months of 2018, and the numbers are telling. Across all regions, more than half of the products assessed beat their respective benchmarks. In other words, on a global scale, the majority outperformed.

Why? Growth stocks, seizing the moment and downside protection

There were a number of different contributors accounting for the active managers’ success in Q1. A major reason was the continued gains seen in growth stocks globally, buoyed by strong earnings results from growth companies. In addition, some active managers were able to take advantage of downturns in the market to add high-quality stocks at more reasonable valuations. Finally, we saw a general shift to a more cautious stance among active managers compared to a year ago. This led to a rotation into consumer staples and telecom stocks, which are traditionally more defensively-oriented.

Read the full blog.
 

3.Chart of the month: Intergenerational wealth

Intergenerational wealth: How do you intend to pass on your wealth to the next generation?


In last week’s blog ‘Intergenerational wealth: What and why’, we outlined the drivers behind the £5.5 trillion expected to move hands over the next few years.

Increased net worth and life expectancy are key factors in any discussion about intergenerational wealth. Thanks to the rise in property prices and equity markets, as well as the recent changes to pensions freedoms, many Brits over 53 have acquired large sums. This, paired with medical advancements and higher standards of living, means we are seeing a central concentration of wealth that is bigger than ever before.

This chart shows that over 60% of people plan to pass their entire wealth upon death. Though this may seem understandable (due to many holding onto their assets to sustain their lifestyle, or due to the taboo subjects that are money and death), limiting one’s wealth to full transition on death may actually not be the most sensible thing to do. In fact, the inheritance tax burden alone should warrant some pre-death distribution.

Savvy advisers should be looking at ways to engage with their clients about the importance of effective inheritance planning, and the benefits to transferring wealth during their lifetime. Furthermore, with a massive 12% of people answering, ‘Don’t know’ when asked how they intend to pass on their wealth, there is a huge opportunity for advisers to showcase the importance of professional advice.

Over the coming months, we will be discussing the numerous way that financial advisers – big and small – can prepare for the Great Wealth Transfer. Next time, we will outline the risks and considerations for financial advisers, as well as the opportunities.
Visit Adviser Acumen for market insights, investment ideas and industry articles.
 

INVESTED. TOGETHER.®



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For Financial Advisers Only

Unless otherwise specified, Russell Investments is the source of all data. All information contained in this material is current at the time of issue and, to the best of our knowledge, accurate. Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice. Opinions expressed by readers don’t necessarily represent Russell’s views.

The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Past Performance is not a guide to future performance

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