How markets have performed (to end March 2017)
The positive performance trends of markets continued in March, with Oil the only notable asset class to deliver a modest negative return during the month (-6% in USD). A succession of solid economic data points from the European markets, and some moderation in the apprehension of investors regarding the upcoming European elections drove these equity markets to lead the way during the month. This capped a strong Q1 for financial markets.
What we are thinking
In our recent Global Investment Committee meeting, debate centered on the outlook for risk assets. Economic fundamentals are supportive, with the global economy performing well and improvements in data from Europe. The counterpoint to this is that the financial markets have largely priced in this ‘good news’, and therefore valuations are high across most asset classes.
Our house view is predicated on the view that the fiscal impulse and the proposed reforms of the Trump administration will provide a short-term boost to economic activity, but that this will unlikely to be sustainable and therefore any disappointment in this mandate will be taken poorly by the financial markets. Trump’s failure to pass the Healthcare bill, shrugged off for the most part by the financial markets, is a signal that support for his manifesto policies is not widespread in Washington. Investor focus has been on the more meaningful impacts of the Tax Reform and Infrastructure Bills. The summer break is fast approaching, and the realities of the legislative framework in the US take their toll on the pace of these policies being tabled. This means that serious progress on these anticipated boosts to the US economy is likely to be delayed until the autumn at the earliest, and most likely roll into 2018.
This led to some changes in our investment strategy positioning. We remain fully exposed to the equity market, preferring allocations to Europe and Asia over US market exposure. Within fixed income, we have a barbell portfolio approach, combining cash holdings with select credit exposures and minimal interest rate duration exposure. Where appropriate for client portfolios, we are looking to allocate to illiquid investment strategies – particularly private equity managers. We also took a decision to initiate an investment in gold bullion for portfolios as a defensive allocation against inflationary and geo-political risks.
Our latest view on asset allocation positioning
Insights from some of our managers
Environmental, social and governance (ESG) considerations within the financial market have traditionally been the preserve of investors choosing to pursue a Socially Responsible Investment approach. However, over the past 12-18 months there has been a notable blurring of these boundaries. We consider many of these factors to be part of ‘good research’; e.g. ‘are management mindful of shareholder rights?’, ‘are there environmental regulation breaches in their process which could lead to liability claims?’. Investor demand, especially from institutional investors, is driving asset managers to disclose their approaches to ESG. In most cases, this has no practical impact upon their investment processes, merely formalising what was considered previously. Where investors must be more vigilant are the cases where, in pursuit of asset growth, managers change their process to meet these standards and therefore open the potential for future returns to be unrelated to previous results.
The first quarter was characterised by very low volatility as political concerns in Europe were shrugged off in favour of expectations of US tax reforms and fiscal stimulus. We think political uncertainty, and therefore volatility, is likely to return to the fore in the second quarter. UK Prime Minister May has just announced a snap election on 8th June and sterling has bounced as traders have rushed to close their shorts. Could it be a case of “Sell in May and go away……”?
About Wren Investment Office
We take a bird’s eye view of a client’s assets, create a comprehensive wealth map and advise on a solution to help meet our client’s expectation. We work with our clients to understand what they want to accomplish and craft a financial plan to achieve their goals. The freedom of being a firm professionally owned and managed affords us the opportunity to source, assess and assemble the finest providers from the financial sector. We believe this helps us provide a robust structure for the management of family wealth. We are part of a global alliance of independent multi-family offices, with MdF Family Partners in Continental Europe and WE Family Offices in the US, that shares the same investment philosophy and the same commitment to providing unconflicted advice, a simple fee structure and adherence to putting clients’ interests first.