What’s been driving investment performance in 2019?

Our reaction to the news

Mohammad Kamal Syed, Head of Asset Management at Coutts, says, “Every investment decision we make is based on data, overlaid with the skill and experience of the investment team and scenario planning. It is this approach, underpinned by a set of principles that define our investment philosophy, that enabled us to produce these strong results for our clients so far this year.

“For example, our focus on the facts and analysis of the bigger economic picture meant we didn’t become overly defensive when markets became volatile earlier in the year.”

How we’ve achieved our results

While a number of changes we made within our client portfolios and funds benefitted our performance, there are three particular moves we think worth highlighting.

• We bought more US equities. This has been good for performance as US shares have outperformed equities in other regions. Economic growth in the country has proved resilient compared to other developed countries, and the US Federal Reserve has acted to counter slower growth by cutting interest rates.
• We bought more government bonds, particularly in the US. Government bonds provide valuable diversification benefits, particularly in volatile markets such as those we saw over the summer. And the fact that we bought more US Treasuries than gilts was another positive move as the latter fell due to Brexit uncertainty.
• We sold some of our UK commercial property exposure. We used the proceeds from this to buy investment grade bonds instead. UK commercial property has performed well previously, but future return expectations have been dampened by retail sector challenges and Brexit uncertainty. Meanwhile, investment grade bonds offer equivalent yields, but with better liquidity and less sensitivity to the UK-EU split.

What next?

Looking ahead, there are reasons for investors to smile, albeit cautiously because nothing is ever guaranteed when it comes to investing.

The data still shows an ongoing slowdown in global economic growth but we are starting to see some signs of stabilisation, particularly in countries known to lead the business cycle such as China and Taiwan.

Meanwhile, as we expected, the American and European central banks have continued with their policy of lower interest rates and have been talking up support for their slowing economies. Central bank actions are the defining factor of this year’s positive equity performance despite slowing global growth.