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Personal Portfolio Funds UK

QUARTERLY FOCUS

The Personal Portfolio Funds (PPF) invest in a range of asset classes such as cash, bonds and equities and offer a number of different risk profiles.
 

Third Quarter 2017

Fund

PERFORMANCE

The Personal Portfolio Funds (PPF) are a simplified representation of our long-term investment house view. These five funds are actively managed but are largely implemented through passive funds. The range of risk profiles enables investors to choose among the funds depending on individual objectives and appetite for risk.  

PPF 1  Cautious (Lower risk)
 Mostly bonds (at least 70%)
PPf 2 Conservative (Lower - Medium risk)
 Mostly bonds (at least 50%), some equity
PPf 3
 Balanced (Medium risk)  
 Equities (at least 45%) and bonds
PPf 4
 Assertive (Medium-Higher risk)
 Mostly equities (at least 65%), some bonds
PPf 5
 Adventurous (Higher risk)
 Mostly equities (at least 90%), minor cash allocation

Spotlight on

Asset Allocation

 

  • We have maintained our overweight allocation to equities while keeping an underweight exposure to UK gilts – both positive moves. Global equity markets were reasonably strong over Q3 while an increase in risk appetite for markets caused gilts to lose all their previous gains this year.
  • Sterling rose to its highest level against the dollar since the EU referendum as the Bank of England dropped heavy hints of an interest rate rise later in the year. This dented performance due to some of the underlying assets in a couple of the funds being denominated in dollars and therefore losing value.
  • Our overweight allocation to Europe (excluding the UK) was another positive contributor. This was driven by synchronised global growth fuelling the European economic recovery and the European Central Bank holding interest rates at low levels. Europe is further behind in the economic cycle than the US and is in a good position to benefit from current economic strength worldwide.

  • Is political risk retreating in Europe

    Merkel’s election win calms markets and Spanish independence row should do little to change that

    As widely expected, Angela Merkel won a fourth term as Chancellor of Germany in September, while the election saw higher than expected support for the far-right AfD.

    Merkel’s win was exactly what markets priced in and we therefore saw no real impact on Coutts portfolios.

    Political risk in the region has retreated since the French election earlier in the year, and our positive view on European equity remains unchanged.

    The Italian election expected next year has the potential to create more disruption. The anti-establishment Five Star Movement, which wants to hold a referendum on the euro, is doing well in the polls and announced the youthful and popular Luigi Di Maio as its candidate.

    But economic momentum across the continent is currently so strong we would not expect this to have any effect until early next year.

    Meanwhile, the independence dispute between Spain and Catalonia should not cause any long-term, significant issues, with any volatility being isolated to local markets.

  • Central banks start reeling in easy monetary policies

     

    Interest rate rises are on the horizon

    The European Central Bank (ECB) indicated it could gradually unwind its stimulus efforts as well.

    Fed chair Janet Yellen acknowledged that the persistence of low inflation despite dovish policies remained a “mystery”. But a strengthening labour market and increasing economic activity helped lead the central bank to announce a run-off of its $4.2trn balance sheet and indicate an interest rate hike later in the year.

    The BoE has also hinted strongly that a rate rise was coming. It decided to leave interest rates at 0.25% at its September meeting, despite the surprising hike in inflation in August from 2.6% to 2.9%, but signalled very strongly that it is looking to change that. The central bank said some withdrawal of monetary stimulus was likely “over the coming months”. As a result, markets are now pricing in the next BoE rate hike by the end of this year rather than late 2018.

    When it does come, we believe the bank will reverse the emergency rate cut introduced after last year’s EU referendum, but little more. It is unlikely to mark the start of a new trend of rate rises. The BoE is acutely aware that economic growth remains slow and Brexit uncertainty persists. It will not want to do anything to jeopardise the UK economy.

    And the European Central Bank (ECB) also indicated it could start to gradually unwind its stimulus efforts. The eurozone economy grew by 2.3% in the second quarter amid a rebound in confidence and a manufacturing boom.

  • Global tensions don’t move markets

    History shows geopolitical concerns have minimal effect on the economy

    Overall, the long-term outlook for markets remains positive with global growth supported by a strong US economy.

    And while we remain aware of potential risks, recent geopolitical developments have had a relatively small impact on markets.

    There is potential for further escalation of tensions between the US and North Korea, and President Trump’s position on the Iranian nuclear arms deal negotiated by Barack Obama could see a rise in pressures in the Middle East.

    It’s also uncertain what direction, if any, Trump’s tax and fiscal policies will take. Markets have largely priced-in bad news and so there’s potential to surprise on the upside here.

    Meanwhile, Brexit uncertainty persists in the UK despite Prime Minister Theresa May attempting to ease concerns by calling for a two-year trade transition period after the UK leaves the EU.

    But while the world watches these developments closely, markets remain largely unmoved. History has shown that geopolitical risks have had little effect on long-term returns.

    Where sell-offs do happen, research reveals that, on average, markets recover by 13% after 12 months.*

    * Source: Deutsche Bank

Performance

table

  Fund returns, after management and administration fees (platform fees not included)

Fund

Last quarter

Sep 16 to Sep 17

Personal Portfolio Fund 1

0.2%

1.1%

 Personal Portfolio Fund 2

0.7%

4.2%

 Personal Portfolio Fund 3

1.1%

6.9%

 Personal Portfolio Fund 4

1.4%

10.3%

 Personal Portfolio Fund 5

1.8%

 14.0%

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The value of investments and any income from them can go down as well as up, and you may not recover the amount of your original investment. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

In the case of some investments, they may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed.

Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.

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