All funds fell in the fourth quarter as markets continued to be challenged by increased friction between the US and China, concerns about US interest rates, the direction of the US dollar, Brexit and the Italian budget crisis.

However, despite a deceleration of global economic growth, it remains above-trend generally, particularly in the US. Economic indicators show healthy labour markets, burgeoning wage growth and robust corporate profits – all of which should support equity markets in the near future.

To reflect the slowing pace of growth, in December we lowered the overall level of risk in our funds by reducing our exposure to European equity and financial credit and holding the proceeds in cash. We are still modestly tilted towards risk assets, but recently focused our exposure in more defensive areas. This will reduce the impact of volatility on performance and give us a reserve of cash to take advantage of opportunities as they arise. 

The outlook for Europe has softened over 2018 following the strong economic growth seen in the previous year. Because of this we reduced our allocation to European shares and added to US equities earlier this year, which has benefitted performance.

We increased exposure to a FTSE 100 fund in February after sharp falls made the index look like good value. While the effects of Brexit on the UK economy remain uncertain, we see these internationally focused, large-cap companies still benefitting from the global economic environment.

We gradually increased our investment in UK government bonds over the year, which should help cushion our portfolios from the worst effects of any further equity market volatility.

Our disciplined investment process and core investment principles underpin our decision making:

• Diversification – Our decision to increase our investment in UK government bonds in the latter part of the year is a good example of the importance we place on having a diversified portfolio. They are attractive at times of greater uncertainty as they provide some good hedging characteristics. Not having all our eggs in one basket enhances the potential for performance while helping to reduce risk.

• Value and selectively contrarian – The solid contribution of our FTSE 100 holdings shows the benefit of taking the contrarian view. While returns have been largely driven by the effect of a weaker sterling, the FTSE 100 includes a large number of global companies with currently strong earnings. We believe they will continue to deliver despite the present uncertainty surrounding the UK.

• Macro-informed asset allocation – While the US-China trade war is a cause for concern, in our view the tariffs so far should not have a huge impact on the US economy or substantially disrupt worldwide growth. The American economy continues to expand, US exports to China represent less than 10% of its total exports – according to the Office of the US Trade Representative – and we think pragmatism will prevail in the dispute.