Coutts in Conversation: A good start to the year for investors

The audience heard that Coutts’ client portfolios and funds were already set up to take advantage when markets became more positive last year. The team started investing in more stocks over bonds back in October, and therefore benefitted from the rally.

David told the audience they saw the mood shift coming from two sources of data they monitor closely.

“Last summer, we started seeing positive signals from OECD lead indicators that show turning points in the business cycle, and company earnings-per-share estimates,” he said. “Both painted an encouraging picture, which at the time was at odds with the rather dire story presented in the headlines around an impending US recession.”

This positivity started to show itself within markets in the autumn, particularly in the US. And it involved broad-based gains across America’s stock market rather than just from stocks associated with artificial intelligence, as had been the case previously.

This appears to be spreading elsewhere too, with positive signals now seen from other areas such as Europe and Japan.

David said the reasons behind the US economy’s resilience – the aforementioned recession never materialised – were two-fold.

“Firstly, it’s because of the fiscal support provided by the federal government,” he said. “A lot of people underestimated the impact of ‘Bidenomics’, which involved injecting funds into key areas.

“Secondly, it’s benefitted from the inflation story. Inflation has been steadily falling for some time, and markets now expect interest rates to be cut this year. It’s a bit of a bumpy ride, with the number and timing of those cuts still unclear. But all indications are that they will come down.”

David did add that the team remained mindful of current geopolitical risks that could cause short-term volatility. And he said another potential “fly in the ointment” was the current strength of the US dollar, and the pressure that might create for parts of the world that either trade or have debt in the currency.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up and you may not get back what you put in. You should continue to hold cash for your short-term needs.

Fahad said at the event that the improving economic and market conditions had supported Coutts’ investment performance so far this year.

He also said the Coutts team was making a fundamental change in the coming months, moving towards global equities and away from its UK ‘home bias’.

“Currently, about 20% of a standard balanced portfolio here is UK stocks, which is something of an anachronism,” he said. “It would be closer to 3% or 4% if it were more commensurate with the proportion of UK stocks in global stock markets. So this is a recalibration. We are adjusting our compass accordingly.”

Fahad said the UK market looked very similar to how it was 100 years ago, but the US market had changed dramatically in that time, with many of its companies not even existing 20 years ago.

David added: “To get access to the widest and best opportunity set, we need to be part of global equities. It gives us much larger reach and enables us to get access to today’s mega themes – such as technology – which are more difficult to access through the UK.”

Fahad also shared the three key pillars of the philosophy behind every investment decision Coutts makes. Those guiding principles are:

• taking risk where the team believes it’ll be well-rewarded – all investing comes with risk, even not taking a risk is a risk. Coutts has a framework in place to help ensure they take ‘good’ risks – those likely to be successful.
• diversifying investments – working to pre-emptively manage any losses within acceptable limits.
• exploiting market shifts – markets are often irrational in the short run and can change fast, which can present the best opportunities.

He told the audience: “Every decision we make links back to our investment philosophy and process. We call it anchor and cycle – with anchor being our long-term, strategic thinking and cycle being about our tactical moves based on where we are in the business cycle.”