Focus on Funds Quarterly Fund Update - Q4 2018 - Verbatim Asset Management
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Focus on Funds Quarterly Fund Update Q4 2018 Economic Overview A Year in Review Farewell to an icon FOR INTERMEDIARY USE ONLY
Welcome Contents
Welcome to the Q4 edition of Focus of Funds – our Economic Overview 4
Quarterly Investment Report designed to provide A Year in Review 6
you with the insights and tools you need to keep
Farewell to an icon 8
up to date in the world of investments and the
performance of the Verbatim investment solutions. HC Verbatim Portfolio
Growth Funds 9
2018 was a tempestuous twelve months globally. With turbulent
markets and global political uncertainties, adviser and investor HC Verbatim Portfolio 3 Fund 12
concerns peaked at an all-time high. As such, this report shares
essential commentary from our leading fund managers which we hope HC Verbatim Portfolio 4 Fund 14
will provide you with the necessary insights to share with your clients.
This past year marked many successes for Verbatim. In addition HC Verbatim Portfolio 5 Fund 16
to relaunching our brand with a new look and feel, we updated our
Strategic Asset Allocation (SAA) to provide flexibility and suitability,
HC Verbatim Portfolio 6 Fund 18
once again demonstrating our ability to protect our clients, whatever HC Verbatim Portfolio 7 Fund 20
future market developments may bring.
As part of The SimplyBiz Group, we are able to provide an additional HC Verbatim Portfolio 5
layer of support and governance to our investment solutions that is Income Fund 23
unmatched by any other asset manager. We leverage the very best
that The SimplyBiz Group has to offer, tapping into the wealth of HC Verbatim
regulatory and investment expertise, to design and deliver investment Multi-Index Funds 29
solutions that not only fit seamlessly into your advice process but also
provide you with peace of mind in the knowledge that your advice will HC Verbatim Multi-Index
remain suitable to meet your clients’ expectations of risk and return. Portfolio 3 Fund 32
With potentially another unpredictable year ahead for the markets,
we believe our investment solutions are ideally positioned to meet
HC Verbatim Multi-Index
your clients’ needs, consistently. Portfolio 4 Fund 34
We would love to hear your feedback and a member of our team HC Verbatim Multi-Index
will make contact with you over the course of the next few weeks to Portfolio 5 Fund 36
discuss your investment proposition and to ensure that you have
everything you need from Verbatim. However, in the meantime, HC Verbatim Multi-Index
please do not hesitate to contact us directly should you have any Portfolio 6 Fund 38
queries or concerns.
Neil Stevens
Joint CEO, SimplyBiz Group/Executive
Chairman, Verbatim Asset Management
For more information visit:
www.verbatimassetmanagement.co.uk
or call: 0808 12 40 007
Information in this publication is for
Professional Advisers only and not for use
with retail clients.
Q4 2018 3
Economic Overview
By Ken Rayner & Graham O’Neill
Rayner Spencer Mills Research, Verbatim Portfolio Manager
The final quarter of 2018 maintained the uncertain
outlook established at the beginning of the year. Even
the US stock market has felt the global downturn,
remaining only marginally positive (in sterling terms)
after the Federal Reserve rate rise, which caused
political and investor disharmony in December. It
is not just down to equities that we have had such a
negative year – a recent Morgan Stanley research note
indicated that up to mid-December there were 21 asset
classes that had seen negative returns in 2018. This is
in contrast to the optimism on which we came into the
year, off the back of a very positive 2017.
4 Quarterly Fund Update
This optimism was short lived as we saw markets fall in countries of Germany and France, as well as those less stable
February based on certain themes that have dominated the such as Italy, falling into uncertainty under the threats of
year. The themes can be summarised as: the uncertainty of the various populist movements. For the UK investor the
the political landscape, the strength of company valuations threat of Brexit has been the key theme and the inability of
against earnings expectations, escalating trade disputes allied politicians on both sides of the divide to agree a solution will
to a slowdown in Chinese growth, a strong US currency and continue to be a threat into 2019. Arguably this is priced into
quantitative tightening. equity markets giving UK stocks some value relative to global
Many analysts predicted greater stock market volatility in 2018 markets. In terms of global growth, the US has continued
and this was broadly in evidence throughout the year, although to lead the western world with Europe seen as the most
there were periods when calm ruled, as it did in 2017. The main disappointing after the previous year’s improvement.
source of this volatility was said to be the shift to quantitative Much of the last 50 years has been characterised by increased
tightening following a long period of loose monetary policy. globalisation but those sands are now shifting and although
The US and UK have been in this mode for some time but only most nations are committed to free trade in some form, the
recently did the ECB join in with bond purchases set to cease tides of nationalism and populism have grown stronger since
in early 2019. There has never been a period of such prolonged the GFC. For many fund managers, trade wars are a major
central bank intervention in global markets and many investors worry for 2019 although the scale of this has diminished
have been nervous about the likely repercussions as it is taken through the year. Sentiment and activity have been affected
away, one of which has been the increase in volatility that we in 2018 and this theme is likely to continue over the next few
have seen at various points in the year, including more recently years. The IMF has indicated that the tariffs imposed so far
in December in the US market. have not had significant effects on global growth (about 0.1-
Equity valuations at the beginning of the year reached 0.2%), however these effects could intensify if the additional
significant multiples, particularly in the US, and this led to tariffs are imposed, causing widespread escalation and
some investors taking profits, concerned about the likelihood feedback loops in financial markets. The role of China in the
of future earnings keeping up with such high valuations. global economy will be crucial to this as a dogmatic approach
Technology companies have led the way over the last few to trade that isolates China could create a global Cold War.
years which has resulted in even higher valuations for this A certain amount of instability was also seen in Asian and
sector, giving way to significant volatility in some stocks as emerging markets as they reacted to the possibility of trade
negative stories started to affect sentiment. Bond markets disputes, whilst at the same time the strength of the US dollar
have not fared much better as yields have generally risen in hit those emerging markets that have more dollar linked
government and corporate debt and spreads have moved out. economies. The dollar’s strength was a constant theme in 2018
In particular emerging market debt has struggled against a reflecting the Fed’s policy of raising rates.
weaker economic backdrop as was shown in countries such as Despite the negative picture painted by most asset classes,
Argentina and Turkey which were particularly affected by US global growth is predicted to be relatively robust in 2019
dollar strength. although most commentators believe that we have passed peak
The political landscape across the globe has been volatile growth, and that the next few years will see a gentle moderation
in 2018 particularly in Europe with even the more stable with greater divergence across a broader range of countries.
Q4 2018 5
A Year in Review
By Davinia Rogers
Sales Director, Verbatim Asset Management
2018 was yet another successful and
eventful year for Verbatim. Despite tough
market conditions and global political
uncertainties, our solutions continued to
meet your and your clients’ expectations of
risk and return.
6 Quarterly Fund Update
A fresh new look
We kick started the year with the launch of our new brand look and feel,
and coupled with the appointment of additions to our sales team we are
ideally positioned to provide advisers with dedicated sales support.
Fund & Strategic Asset Allocation Update
In April we transferred the administration of the Verbatim Portfolio and
Multi- Index fund ranges to Host Capital Ltd. This update provided the
ideal opportunity to rename the Verbatim Total Clarity fund range to
Verbatim Multi-Index funds, a name we feel better reflects the strategy of
the funds, which is to utilise main market indices to deliver cost effective
performance.
In the second half of the year our Investment Committee conducted a
review of our asset allocation methodology and utilised independent data
modelling to identify the most efficient methods of portfolio optimisation.
Working alongside the team of experts at SimplyBiz Investment Services,
we updated our Strategic Asset Allocation (SAA) to create increased effi-
ciencies and flexibility of our SAA to safeguard your clients’ investments,
whatever future markets may bring.
New Risk-Controlled Rating
The update to our SAA ensured that our investment solutions absolutely
fall within the Centra strategic asset allocation and volatility parameters
and as such our solutions are currently the only risk-controlled investment
solutions within Centra - the SimplyBiz Group’s end-to-end investment
advice system, designed with cutting-edge technology to provide you with
the tools and support you need to run a compliant and efficient centralised
investment process.
Dependable in an unpredictable world
It goes without saying that clearly defining your client’s tolerance for risk
and ability to bear loss provides you with the ideal platform to both manage
and meet your client’s performance expectations. Through utilising a
diverse portfolio that has a proven track record of performance, and meets
your risk profiling requirements, you ensure that you continue to meet your
clients’ expectations. At Verbatim, this is exactly what we offer – investment
solutions that you can trust to weather the storms of turbulent market
conditions.
As we approach our nine year anniversary, it is clear that our performance
track record highlights that our solutions not only deliver performance
consistently, but also show growth over time in-line with their respective
fund mandates. The start of 2019 has brought a new level of uncertainty
for advisers and investors alike. Turbulent markets coupled with political
uncertainties have peaked investor concerns. As such, you can trust us to
continue to offer you solutions that you can count on to meet your clients’
expectations during these uncertain times.
Q4 2018 7
Farewell to
an icon
By Jim Roberts
Chairman of the Verbatim Investment Committee
There have been few of whom it can be said, they changed
the financial world, but Jack Bogle, the founder of Vanguard
Group, who died aged 89 on 16th January 2019, was certainly Most of all,
one of them.
you have to be
He was born at the beginning of the concentrations. It is worth asking whether disciplined and
Depression, his family having lost most of today’s FTSE 100 Index investors are aware
its wealth in the Great Wall Street Crash that their principal investments are in oil, you have to save…
of 1929. Bogle had to work hard for what
he achieved. He won a scholarship to a
mining and banking companies. In smaller
and newer areas, such as emerging markets,
Because if you
prestigious private school near his home, passive funds have consistently and don’t save, then
from which he was accepted into Princeton. sometimes spectacularly, failed to keep up
After graduating in 1951, he started work with their active counterparts. you’re guaranteed
for the Wellington Fund and made his way
to the top, becoming Chairman in 1970.
However, this type of investing has
an important place in the spectrum of
to end up with
In 1974, he engineered a merger with an
advisory company, which went badly wrong,
investment choices. It allows low-cost nothing.
access to risk asset classes, which over long
and he was fired. It was a pivotal moment. timescales, have proved to be the most
“If I had not been fired, then there would not profitable. This is why Verbatim offers a
have been a Vanguard,” he said. range of Multi-Index funds. Managed by
In January 1975 Jack Bogle launched his Architas, using passive funds to fit within
low-cost passive fund, tied to the value of the structure of the Verbatim Strategic Asset
the S&P 500 Index. It was the world’s first Allocation model, all four have achieved
index mutual fund. By the end of the first Lipper Consistent Return ratings for their
year, it had attracted much criticism from relative superior consistency and risk-
the investment community, but also $1.7 adjusted returns. They form an important
billion of investors’ money. By the end of element of the Verbatim investment
2018, Vanguard was managing $5.1 trillion. universe.
As the great man put it, “Turns out, when As savers and investors we are the direct
you do what’s right for investors, money and indirect beneficiaries of Jack Bogle’s
pours in.” innovation. So let me conclude with a
Whilst index investing has developed wide simple but important piece of advice
popular appeal, it has to be acknowledged from him on how to invest. It may help to
that there are significant drawbacks. The persuade those who have yet to commit.
most overpriced stocks are over-weighted “Most of all, you have to be disciplined
and the cheapest stocks under-weighted, and you have to save, even if you hate our
arguably, the very opposite of a ‘buy low, sell current financial system. Because if you
high’ philosophy. Such funds can also lead don’t save, then you’re guaranteed to end
to unintentional and / or undesirable sector up with nothing.”
8 Quarterly Fund Update
HC Verbatim Portfolio Growth Funds
HC Verbatim
Portfolio Growth Funds
Market Review
Hopes for the traditional Santa rally to end 2018 on a high – or at least
sweep away some of the recent clouds – were dashed in December and
most indices ended the year down. John Husselbee
With Brexit adding its considerable weight to trade war concerns, Liontrust Investment
Partners LLP
the UK was among the hardest-hit regions, with the FTSE 100’s near
13% decline over 2018 the worst showing since 2008. Other markets
around the world also ended the year in the doldrums, dragging the
MSCI All Country World Index to an 11% annual loss – again, its worst
in a decade.
The quarter began with the so-called October effect in full force, with Paul Kim
markets in freefall as several indices dipped into correction territory. Liontrust Investment
Many of the worst market falls in history have come in October, Partners LLP
primarily Black Tuesday (1929) and Black Monday (1987), and while
the ‘effect’ might be psychological rather than driven by anything
concrete, this month gave us the worst rout in six years.
Fund Managers
In the background, President Trump continues his pugilistic brand
of ‘politics’, frequently rounding on his current favoured targets at John and Paul are fund managers for
the Federal Reserve. Ignoring the president’s traditional avoidance the Verbatim Portfolio Growth funds
of commenting on monetary policy, Trump said he would like to see and are two of the most high-profile
lower interest rates and, as expected, put the blame for Red October multi-asset managers, with 62 years of
squarely at the Fed’s door. combined investment experience. Since
being selected to manage the funds, they
Amid a flurry of abuse from the White House, the Fed raised have grown in stature, obtaining top
interest rates again in December, its fourth hike of 2018. Recent performance ratings from Morningstar
market weakness has led to questions about whether the Bank will and Lipper. In 2017, the entire fund range
maintain its policy tightening course and a couple of recent speeches was rated by RSMR, one of the leading
potentially hinted at a slight softening. fund research agencies.
Alongside its hike announcement, Fed officials said they now forecast John has been Head of the Multi-Asset
two rises next year, down from the three previously projected, team at Liontrust since 2013, with
although continued to stress that further “gradual” increases are Paul joining at the same time as fund
appropriate. If market falls continue, it remains to be seen how long manager. John was previously Director
the Bank will hold that line: rumours are already circling that Trump of Multi-Manager Investments at
may ramp up his vitriol and is actually discussing his desire to Henderson Global Investors and launched
dismiss Fed chair Jerome Powell with aides. the portfolio management service at
Across the Atlantic, the European Central Bank confirmed the recent Rothschild Asset Management. Paul was
loss of growth momentum is not enough to derail plans to begin previously Head of Fund selection and
dialling back quantitative easing. ECB President Mario Draghi noted Multi-Manager at Liverpool Victoria Asset
disappointing eurozone growth since summer but dismissed fears the Management (LVAM).
Bank may be cutting support at the worst possible moment.
Of course, no outlook can sidestep Brexit with the situation seemingly
settling into an impasse: Theresa May has survived a vote of no
confidence but cannot get her deal through parliament and the EU
seems unwilling to grant any concessions. We are now in a position
10 Quarterly Fund UpdateOutlook
Based on Sir John Templeton’s quote that
“Bull markets are born on pessimism, grow
on scepticism, mature on optimism and die
on euphoria,” we believe the US is at stage
three – and potentially well through that –
and the rest of the world is still at two.
We are therefore looking for better news
where even the one certainty in this situation – that the UK would
from outside the US and with Europe, at
leave the EU on 29 March 2019 – is no longer definite and all
least for now, tied in up politics, impetus
possibilities, from no deal, May’s deal, extending the deadline
may have to come from China. As stated,
and not leaving at all, appear possible.
the country’s relationship with the US will
Economically speaking, what we can say is that a harder Brexit be a huge factor in global markets over the
scenario would lead to weaker sterling, softer gilt yields and course of 2019 but we would also expect the
a better environment for larger caps over smaller and a softer government to stimulate its economy if it is
Brexit the opposite – but unlike the vote itself, this is nothing like to continue to grow around the 6% level.
a binary call.
Looking forward, commodities and
specifically the oil price looks set to be a
key factor and we would suggest a lower
level around the current sub-$60 is fairly
Fund Review favourable for risk assets.
As we have continued to stress through recent market weakness Japan has been something of a forgotten
– and during any period of correction – we take a long-term, market in recent years, with little political
diversified approach to running multi-asset portfolios and try to scandal and a fairly positive trade
avoid short-term noise as far as possible. relationship with the US, and as the country
is a major beneficiary of lower oil prices as
2018 was tough for active management as smaller companies
an importer, we feel it could surprise on the
underperformed and it remains to be seen whether conditions
upside. Elsewhere, Brazil and Russia of the
are more conducive in 2019. We introduced a value tilt to our
Bric quartet tend to benefit from stronger
portfolios at the start of the year and that trade started to bear
oil and India and China from weaker so
fruit in recent months – although we will have to wait and
ongoing muted prices could be another spur
see whether that is a temporary phenomenon or the start of
for the latter.
a longer-term shift. Over the years, an environment of rising
interest rates has typically been good for value stocks and with Overall, while we are moving through the
the election campaigning cycle beginning again in the US, market cycle, leading indicators do not yet
we expect to see some of the growth names, particularly the point to the risk of imminent recession and
FAANGs, come under renewed political fire. global economic growth in 2019 should still
surpass the post-financial crisis average.
As ever, we look to buy our favoured markets cheaply wherever
We think this suggests earnings and share
possible and recent months have provided ample opportunity
values have room to advance.
to top up positions in Asia and emerging markets, where we
continue to believe prospects are attractive if you look past The ten largest companies in the UK
immediate concerns. currently offer an average yield above 5%
and that seems a fairly compelling entry
Reversing the trend for much of the year, developed market
point however you feel about trade wars or
funds were the weakest performers over Q4, with UK, European
Brexit.
and Japanese vehicles all featuring in the worst holdings. Asia
and emerging market portfolios, while still down over the
period, fell less on a relative basis, having already suffered for a
large part of 2018.
Highlighting the benefits of running diversified portfolios, bond
exposure helped offset equity weakness to a small extent, with
the top performers over the quarter including Axa Sterling Buy
and Maintain Credit, Vanguard Global Bond Index and Royal
London Index Linked.
Q4 2018 11HC Verbatim Portfolio 3 Growth Fund
STRATEGIC ASSET ALLOCATION TOP FUND HOLDINGS
The Strategic Asset Allocation shown is valid as at 31/12/2018
Legal & General ALL Stocks - I Acc 14.50%
Cash 11% Sterling 11.66%
UK Index Linked Bonds 3%
Royal London Index Linked Fund M Inc 9.28%
UK Government Bonds 8%
UK Corporate Bonds 20% Vanguard Global Bond Index Fund- GBP -A 9.17%
Global (Ex-UK) Fixed Income 19% AXA Sterling Buy and Maintain Credit Fund CR-ZAG 5.36%
Global Property 10%
UK Equity 16%
Fidelity Investment Funds ICVC - MoneyBuilder Inc 5.36%
Europe (Ex-UK) Equity 3% Royal London Corporate Bond Fund M Inc 5.27%
North America Equity 10%
Legal & General Sterling Corporate Bond Index -I-I 5.24%
Fidelity Investment Fund ICVC - UK-PA 3.16%
TACTICAL ASSET ALLOCATION Fidelity Special Situations -W-Acc 2.67%
The Tactical Asset Allocation shown is valid as at 31/12/2018.
SAA stated prior to update on 12 Nov 2018. Legal & General UK Prpty Fund-I Acc 2.57%
Fund % SAA Variation M&G Property Portfolio IIGBP 2.45%
Cash 12.30 15.00 -2.70 Liontrust Macro Equity Income Fund INC - I GBPA 2.43%
UK Corporate Bond 21.00 21.00 0.00 GLG Japan Corealpha AAX GBP 2.20%
Index Linked Bond 9.00 9.00 0.00
Liontrust UK Growth Fund 2.13%
International Bond 9.00 9.00 0.00
Global High Yield 0.00 0.00 0.00
UK Gilt 14.00 14.00 0.00
UK Equities 13.70 14.00 -0.30
European Equities 5.00 2.00 3.00
US Equities 3.00 6.00 -3.00
Japan Equities 5.00 2.00 3.00
Asia ex Japan Equities 3.00 0.00 3.00
Emerging Markets 0.00 0.00 0.00
Hedge Strategies 0.00 0.00 0.00
Property 5.00 8.00 -3.00
TOP 5 CONTRIBUTORS TO PERFORMANCE BOTTOM 5 CONTRIBUTORS TO PERFORMANCE
Contribution Contribution
Security Security
to Return to Return
Legal & General ALL Stocks - I Acc 0.31 Baillie Gifford Japanese Fund B Acc -0.32
Royal London Index Linked Fund M Inc 0.18 Jupiter European Opportunities Trust Plc Ord 1p -0.35
Vanguard Global Bond Index Fund- GBP -A 0.12 Fidelity Investment Fund ICVC - UK-PA -0.42
Legal & General Sterling Corporate Bond Index -I-I 0.03 GLG Japan Corealpha AAX GBP -0.47
AXA Sterling Buy and Maintain Credit Fund CR-ZAG 0.01 Fidelity Special Situations -W-Acc -0.5
12 Quarterly Fund UpdateDISCRETE ANNUAL
1YR CUMULATIVE PERFORMANCE PERFORMANCE
Performance from 31st December 2017 – 31st December 2018
Total returns
1.0% HC Verbatim for the
Portfolio 3 B periods
0.5%
Acc shown
0.0% (Sterling)
-0.5%
01/01/2018 -
-1.0% -3.48%
31/12/2018
-1.5%
01/01/2017 -
-2.0% 5.96%
31/12/2017
-2.5%
01/01/2016 -
-3.0% 10.98%
31/12/2016
-3.5%
01/01/2015 -
-4.0% 1.17%
31/12/2015
17
18
18
18
18
18
18
18
18
18
18
18
18
20
20
20
20
20
20
20
20
20
20
20
20
20
2/
1/
2/
3/
4/
5/
6/
7/
8/
9/
0/
1/
2/
01/01/2014 -
/1
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
7.16%
29
29
28
31
30
31
30
31
31
30
31
30
31 31/12/2014
5YR CUMULATIVE PERFORMANCE
Performance from 31st December 2013 – 31st December 2018 CUMULATIVE
PERFORMANCE
30.0%
Since trading
52.7%
25.0% (01/03/10)
20.0% 1 Year to
-3.5%
31/12/2018
15.0%
5 Year to
23.1%
10.0% 31/12/2018
5.0%
0.0%
-5.0%
13
14
14
15
15
16
16
17
17
18
18
20
20
20
20
20
20
20
20
20
20
20
2/
6/
2/
6/
2/
6/
2/
6/
2/
6/
2/
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
31
30
31
30
31
30
31
30
31
30
31
Source for Performance Graphs & Data: Host Capital Ltd. Fund data based on B Accumulation
shares, percentage growth total return mid to mid in UK Sterling, with net income reinvested. Past
performance is no guarantee of future performance.
Q4 2018 13HC Verbatim Portfolio 4 Growth Fund
STRATEGIC ASSET ALLOCATION TOP FUND HOLDINGS
The Strategic Asset Allocation shown is valid as at 31/12/2018
Sterling 9.19%
Cash 10%
Legal & General ALL Stocks - I Acc 7.84%
UK Government Bonds 6%
UK Corporate Bonds 16% AXA Sterling Buy and Maintain Credit Fund CR-ZAG 5.92%
Global (Ex-UK) Fixed Income 14%
Fidelity Investment Funds ICVC - MoneyBuilder Inc 5.48%
Global Property 12%
UK Equity 16% Royal London Corporate Bond Fund M Inc 5.44%
Europe (Ex-UK) Equity 4%
Legal & General Sterling Corporate Bond Index -I-I 5.43%
North America Equity 15%
Developed Pacific (Ex-Japan) Equity 4% Royal London Index Linked Fund M Inc 4.95%
Japan Equity 3%
Vanguard Global Bond Index Fund- GBP -A 4.68%
Fidelity Investment Fund ICVC - UK-PA 4.02%
TACTICAL ASSET ALLOCATION JPM US Equity Income-C-Acc 3.41%
The Tactical Asset Allocation shown is valid as at 31/12/2018.
SAA stated prior to update on 12 Nov 2018. GLG Japan Corealpha AAX GBP 3.00%
Fund % SAA Variation Liontrust European Income Fund 2.98%
Cash 9.00 10.00 -1.00 Fidelity Special Situations -W-Acc 2.93%
UK Corporate Bond 24.40 22.00 2.40 Liontrust Global Funds PLC - Asia Income Fund 2.83%
Index Linked Bond 4.30 5.00 -0.70 Liontrust Macro Equity Income Fund INC - I GBPA 2.72%
International Bond 4.90 3.00 1.90
Global High Yield 0.90 3.00 -2.10
UK Gilt 7.50 8.00 -0.50
UK Equities 16.00 19.00 -3.00
European Equities 7.00 4.00 3.00
US Equities 7.00 10.00 -3.00
Japan Equities 7.00 4.00 3.00
Asia ex Japan Equities 7.00 4.00 3.00
Emerging Markets 0.00 0.00 0.00
Hedge Strategies 0.00 0.00 0.00
Property 5.00 8.00 -3.00
TOP 5 CONTRIBUTORS TO PERFORMANCE BOTTOM 5 CONTRIBUTORS TO PERFORMANCE
Contribution Contribution
Security Security
to Return to Return
Legal & General ALL Stocks - I Acc 0.16 UBS US Growth Fund-C Acc -0.45
Royal London Index Linked Fund M Inc 0.09 Jupiter European Opportunities Trust Plc Ord 1p -0.48
Vanguard Global Bond Index Fund- GBP -A 0.06 Fidelity Investment Fund ICVC - UK-PA -0.50
Legal & General Sterling Corporate Bond Index -I-I 0.03 Fidelity Special Situations -W-Acc -0.55
AXA Sterling Buy and Maintain Credit Fund CR-ZAG 0.02 GLG Japan Corealpha AAX GBP -0.62
14 Quarterly Fund Update1YR CUMULATIVE PERFORMANCE DISCRETE ANNUAL
Performance from 31st December 2017 – 31st December 2018 PERFORMANCE
3.0%
Total returns
2.0% HC Verbatim for the
1.0%
Portfolio 4 B periods
Acc shown
0.0% (Sterling)
-1.0%
01/01/2018 -
-4.38%
-2.0% 31/12/2018
-3.0%
01/01/2017 -
8.44%
-4.0% 31/12/2017
-5.0% 01/01/2016 -
9.48%
-6.0%
31/12/2016
01/01/2015 -
17
18
18
18
18
18
18
18
18
18
18
18
18
3.82%
20
20
20
20
20
20
20
20
20
20
20
20
20
2/
1/
2/
3/
4/
5/
6/
7/
8/
9/
0/
1/
2/
31/12/2015
/1
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
29
29
28
31
30
31
30
31
31
30
31
30
31 01/01/2014 -
6.79%
31/12/2014
5YR CUMULATIVE PERFORMANCE
Performance from 31st December 2013 – 31st December 2018
CUMULATIVE
40.0% PERFORMANCE
35.0%
Since trading
60.0%
30.0% (01/03/10)
25.0%
1 Year to
-4.4%
20.0% 31/12/2018
15.0%
5 Year to
25.9%
10.0% 31/12/2018
5.0%
0.0%
-5.0%
13
14
14
15
15
16
16
17
17
18
18
20
20
20
20
20
20
20
20
20
20
20
2/
6/
2/
6/
2/
6/
2/
6/
2/
6/
2/
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
31
30
31
30
31
30
31
30
31
30
31
Source for Performance Graphs & Data: Host Capital Ltd. Fund data based on B Accumulation
shares, percentage growth total return mid to mid in UK Sterling, with net income reinvested. Past
performance is no guarantee of future performance.
Q4 2018 15HC Verbatim Portfolio 5 Growth Fund
STRATEGIC ASSET ALLOCATION TOP FUND HOLDINGS
The Strategic Asset Allocation shown is valid as at 31/12/2018
Legal & General ALL Stocks - I Acc 6.89%
Cash 4%
Fidelity Investment Fund ICVC - UK-PA 5.66%
UK Government Bonds 4%
UK Corporate Bonds 21% AXA Sterling Buy and Maintain Credit Fund CR-ZAG 5.61%
Global (Ex-UK) Fixed Income 6%
Global Property 11% Legal & General Sterling Corporate Bond Index -I-I 5.55%
UK Equity 18% Fidelity Investment Funds ICVC - MoneyBuilder Inc 5.47%
Europe (Ex-UK) Equity 4%
North America Equity 18% Royal London Corporate Bond Fund M Inc 5.45%
Developed Pacific (Ex-Japan) Equity 8%
JPM US Equity Income-C-Acc 4.55%
Japan Equity 3%
Emerging Markets Equity 3% Fidelity Special Situations -W-Acc 4.15%
CF Lindsell Train UK Equity Fund - Acc 4.05%
TACTICAL ASSET ALLOCATION Liontrust Macro Equity Income Fund INC - I GBPA 4.02%
The Tactical Asset Allocation shown is valid as at 31/12/2018. Liontrust UK Growth Fund 3.44%
SAA stated prior to update on 12 Nov 2018.
GLG Japan Corealpha AAX GBP 3.22%
Fund % SAA Variation
UBS US Growth Fund-C Acc 3.14%
Cash 5.00 5.00 0.00
UK Corporate Bond 23.79 21.00 2.79 Liontrust European Income Fund 2.94%
Index Linked Bond 1.00 0.00 1.00 M&G Property Portfolio IIGBP 2.41%
International Bond 0.00 0.00 0.00
Global High Yield 1.11 4.00 -2.89
UK Gilt 6.50 5.00 1.50
UK Equities 23.00 26.00 -3.00
European Equities 7.00 4.00 3.00
US Equities 10.30 12.00 -1.70
Japan Equities 7.60 6.00 1.60
Asia ex Japan Equities 3.90 5.00 -1.10
Emerging Markets 6.30 5.00 1.30
Hedge Strategies 0.00 0.00 0.00
Property 4.50 7.00 -2.50
TOP 5 CONTRIBUTORS TO PERFORMANCE BOTTOM 5 CONTRIBUTORS TO PERFORMANCE
Contribution Contribution
Security Security
to Return to Return
Legal & General ALL Stocks - I Acc 0.13 Liontrust UK Growth Fund -0.44
Legal & General Sterling Corporate Bond Index -I-I 0.03 UBS US Growth Fund-C Acc -0.58
Artemis Glbl Emrg Mkts-iagbp 0.02 Fidelity Investment Fund ICVC - UK-PA -0.63
Royal London Index Linked Fund M Inc 0.02 GLG Japan Corealpha AAX GBP -0.63
AXA Sterling Buy and Maintain Credit Fund CR-ZAG 0.01 Fidelity Special Situations -W-Acc -0.73
16 Quarterly Fund Update1YR CUMULATIVE PERFORMANCE DISCRETE ANNUAL
Performance from 31st December 2017 – 31st December 2018 PERFORMANCE
3.0%
Total returns
HC Verbatim
2.0% for the
Portfolio 5
1.0% periods
Growth B
shown
0.0% Acc
(Sterling)
-1.0%
01/01/2018 -
-2.0% -5.85%
31/12/2018
-3.0%
01/01/2017 -
-4.0% 10.41%
31/12/2017
-5.0%
-6.0% 01/01/2016 -
11.84%
31/12/2016
-7.0%
01/01/2015 -
17
18
18
18
18
18
18
18
18
18
18
18
18
4.08%
20
20
20
20
20
20
20
20
20
20
20
20
20
31/12/2015
2/
1/
2/
3/
4/
5/
6/
7/
8/
9/
0/
1/
2/
/1
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
29
29
28
31
30
31
30
31
31
30
31
30
31
01/01/2014 -
6.15%
31/12/2014
5YR CUMULATIVE PERFORMANCE
Performance from 31st December 2013 – 31st December 2018
CUMULATIVE
45.0%
PERFORMANCE
40.0%
Since trading
35.0% 64.7%
(01/03/10)
30.0%
1 Year to
25.0% -5.8%
31/12/2018
20.0%
15.0% 5 Year to
28.5%
31/12/2018
10.0%
5.0%
0.0%
-5.0%
13
14
14
15
15
16
16
17
17
18
18
20
20
20
20
20
20
20
20
20
20
20
2/
6/
2/
6/
2/
6/
2/
6/
2/
6/
2/
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
31
30
31
30
31
30
31
30
31
30
31
Source for Performance Graphs & Data: Host Capital Ltd. Fund data based on B Accumulation
shares, percentage growth total return mid to mid in UK Sterling, with net income reinvested. Past
performance is no guarantee of future performance.
Q4 2018 17HC Verbatim Portfolio 6 Growth Fund
STRATEGIC ASSET ALLOCATION TOP FUND HOLDINGS
The Strategic Asset Allocation shown is valid as at 31/12/2018
Fidelity Investment Fund ICVC - UK-PA 6.76%
Cash 3%
UK Government Bonds 3%
Fidelity Special Situations -W-Acc 5.42%
UK Corporate Bonds 13% Liontrust Macro Equity Income Fund INC - I GBPA 5.07%
Global (Ex-UK) Fixed Income 4%
JPM US Equity Income-C-Acc 5.01%
Global Property 10%
UK Equity 21% CF Lindsell Train UK Equity Inc 4.80%
Europe (Ex-UK) Equity 9%
AXA Sterling Buy and Maintain Credit Fund CR-ZAG 4.35%
North America Equity 18%
Developed Pacific (Ex-Japan) Equity 12% Legal & General Sterling Corporate Bond Index -I-I 4.31%
Japan Equity 4%
Fidelity Investment Funds ICVC - MoneyBuilder Inc 4.24%
Emerging Markets Equity 3%
Royal London Corporate Bond Fund M Inc 4.23%
TACTICAL ASSET ALLOCATION Liontrust European Income Fund 4.15%
The Tactical Asset Allocation shown is valid as at 31/12/2018.
SAA stated prior to update on 12 Nov 2018. Liontrust UK Growth Fund 4.10%
GLG Japan Corealpha AAX GBP 4.05%
Fund % SAA Variation
ARTEMIS GLBL EMRG MKTS-IAGBP 3.72%
Cash 3.70 4.00 -0.30
UK Corporate Bond 17.85 16.00 1.85 First State Global EM Leaders - B- AGBP 3.71%
Index Linked Bond 1.40 0.00 1.40 UBS US Growth Fund-C Acc 3.02%
International Bond 1.64 0.00 1.64
Global High Yield 1.11 4.00 -2.89
UK Gilt 0.00 0.00 0.00
UK Equities 29.00 31.00 -2.00
European Equities 8.00 5.00 3.00
US Equities 10.00 12.00 -2.00
Japan Equities 8.70 7.00 1.70
Asia ex Japan Equities 6.70 8.00 -1.30
Emerging Markets 9.00 8.00 1.00
Hedge Strategies 0.00 0.00 0.00
Property 2.90 5.00 -2.10
TOP 5 CONTRIBUTORS TO PERFORMANCE BOTTOM 5 CONTRIBUTORS TO PERFORMANCE
Contribution Contribution
Security Security
to Return to Return
Artemis Glbl Emrg Mkts-iagbp 0.03 UBS US Growth Fund-C Acc -0.56
Legal & General Sterling Corporate Bond Index -I-I 0.02 River and Mercantile UK Micro Cap Inv Co -0.60
Vanguard Global Bond Index Fund- GBP -A 0.02 Fidelity Investment Fund ICVC - UK-PA -0.74
Royal London Index Linked Fund M Inc 0.02 GLG Japan Corealpha AAX GBP -0.77
AXA Sterling Buy and Maintain Credit Fund CR-ZAG 0.01 Fidelity Special Situations -W-Acc -0.87
18 Quarterly Fund Update1YR CUMULATIVE PERFORMANCE DISCRETE ANNUAL
Performance from 31st December 2017 – 31st December 2018 PERFORMANCE
4.0%
Total returns
HC
for the
2.0% Verbatim
periods
Portfolio 7
shown
0.0% B Acc
(Sterling)
-2.0%
01/01/2018 -
-7.56%
-4.0%
31/12/2018
01/01/2017 -
-6.0% 12.91%
31/12/2017
-8.0%
01/01/2016 -
13.85%
-10.0%
31/12/2016
01/01/2015 -
17
18
18
18
18
18
18
18
18
18
18
18
18
20
20
20
20
20
20
20
20
20
20
20
20
20
0.94%
2/
1/
2/
3/
4/
5/
6/
7/
8/
9/
0/
1/
2/
31/12/2015
/1
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
29
29
28
31
30
31
30
31
31
30
31
30
31
01/01/2014 -
1.84%
31/12/2014
5YR CUMULATIVE PERFORMANCE
Performance from 31st December 2013 – 31st December 2018
CUMULATIVE
40.0% PERFORMANCE
35.0%
Since trading
61.8%
30.0% (01/03/10)
25.0%
1 Year to
20.0% -7.6%
31/12/2018
15.0%
5 Year to
10.0% 22.2%
31/12/2018
5.0%
0.0%
-5.0%
-10.0%
13
14
14
15
15
16
16
17
17
18
18
20
20
20
20
20
20
20
20
20
20
20
2/
6/
2/
6/
2/
6/
2/
6/
2/
6/
2/
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
31
30
31
30
31
30
31
30
31
30
31
Source for Performance Graphs & Data: Host Capital Ltd. Fund data based on B Accumulation
shares, percentage growth total return mid to mid in UK Sterling, with net income reinvested. Past
performance is no guarantee of future performance.
Q4 2018 19HC Verbatim Portfolio 7 Growth Fund
STRATEGIC ASSET ALLOCATION TOP FUND HOLDINGS
The Strategic Asset Allocation shown is valid as at 31/12/2018
Fidelity Investment Fund ICVC - UK-PA 7.90%
UK Government Bonds 3%
CF Lindsell Train UK Equity Inc 6.08%
UK Corporate Bonds 3%
Global (Ex-UK) Fixed Income 6% Fidelity Special Situations -W-Acc 5.85%
Global Property 10%
UK Equity 23% Liontrust Macro Equity Income Fund INC - I GBPA 5.80%
Europe (Ex-UK) Equity 14%
First State Global EM Leaders - B- AGBP 5.39%
North America Equity 17%
Developed Pacific (Ex-Japan) Equity 14% ARTEMIS GLBL EMRG MKTS-IAGBP 5.06%
Japan Equity 4%
Liontrust UK Growth Fund 5.06%
Emerging Markets Equity 6%
Liontrust Global Funds PLC - Asia Income Fund 4.46%
GLG Japan Corealpha AAX GBP 4.12%
TACTICAL ASSET ALLOCATION Schroder AsiaPacific Fund Plc 4.05%
The Tactical Asset Allocation shown is valid as at 31/12/2018.
SAA stated prior to update on 12 Nov 2018. Fidelity Investment Fund-Index Emerg Market P Acc 3.31%
Fund % SAA Variation Liontrust European Income Fund 3.30%
Cash 0.97 0.00 0.97 JPM US Equity Income-C-Acc 3.25%
UK Corporate Bond 8.63 5.00 3.63 Liontrust GF High Yield Bond Fund 2.91%
Index Linked Bond 1.70 0.00 1.70 Fidelity Investment Funds - Index Pac XJP -P Acc 2.70%
International Bond 1.79 0.00 1.79
Global High Yield 1.48 5.00 -3.52
UK Gilt 0.00 0.00 0.00
UK Equities 33.00 35.00 -2.00
European Equities 8.00 5.00 3.00
US Equities 7.02 10.00 -2.98
Japan Equities 9.10 8.00 1.10
Asia ex Japan Equities 11.10 13.00 -1.90
Emerging Markets 13.51 14.00 -0.49
Hedge Strategies 0.00 0.00 0.00
Property 3.70 5.00 -1.30
TOP 5 CONTRIBUTORS TO PERFORMANCE BOTTOM 5 CONTRIBUTORS TO PERFORMANCE
Contribution Contribution
Security Security
to Return to Return
Artemis Glbl Emrg Mkts-iagbp 0.04 Liontrust Macro Equity Income Fund INC - I GBPA -0.58
Royal London Index Linked Fund M Inc 0.04 Liontrust UK Growth Fund -0.60
Vanguard Global Bond Index Fund- GBP -A 0.02 GLG Japan Corealpha AAX GBP -0.78
Legal & General Sterling Corporate Bond Index -I-I 0.01 Fidelity Investment Fund ICVC - UK-PA -0.85
AXA Sterling Buy and Maintain Credit Fund CR-ZAG 0.00 Fidelity Special Situations -W-Acc -1.00
20 Quarterly Fund Update1YR CUMULATIVE PERFORMANCE DISCRETE ANNUAL
Performance from 31st December 2017 – 31st December 2018 PERFORMANCE
4.0%
Total returns
HC
for the
2.0% Verbatim
periods
Portfolio 7
shown
0.0% B Acc
(Sterling)
-2.0%
01/01/2018 -
-8.37%
-4.0% 31/12/2018
01/01/2017 -
-6.0% 13.97%
31/12/2017
-8.0%
01/01/2016 -
19.07%
-10.0%
31/12/2016
01/01/2015 -
17
18
18
18
18
18
18
18
18
18
18
18
18
-0.15%
20
20
20
20
20
20
20
20
20
20
20
20
20
2/
1/
2/
3/
4/
5/
6/
7/
8/
9/
0/
1/
2/
31/12/2015
/1
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
29
29
28
31
30
31
30
31
31
30
31
30
31 01/01/2014 -
3.94%
31/12/2014
5YR CUMULATIVE PERFORMANCE
Performance from 31st December 2013 – 31st December 2018
CUMULATIVE
50.0% PERFORMANCE
Since trading
40.0% 78.2%
(01/03/10)
30.0% 1 Year to
-8.4%
31/12/2018
20.0%
5 Year to
29.1%
31/12/2018
10.0%
0.0%
-10.0%
13
14
14
15
15
16
16
17
17
18
18
20
20
20
20
20
20
20
20
20
20
20
2/
6/
2/
6/
2/
6/
2/
6/
2/
6/
2/
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
31
30
31
30
31
30
31
30
31
30
31
Source for Performance Graphs & Data: Host Capital Ltd. Fund data based on B Accumulation
shares, percentage growth total return mid to mid in UK Sterling, with net income reinvested. Past
performance is no guarantee of future performance.
Q4 2018 21Searching for the fund
management leopards
By John Husselbee
Co-Fund Manager HC Verbatim Portfolio Growth Funds
If anyone ever asks where a well-known quote against a variety of different backgrounds – anyone starting in
equities over the last decade for example has seen nothing but
comes from, answering Shakespeare or the bull markets – and that automatically skews us towards those
Bible will be right a decent amount of the time. with the odd grey hair or two.
Keeping faith in a particular style can also involve an element
The quote ‘a leopard never changes its spots’ can be found in the of career risk – we saw many value managers dismissed as
latter, attributed to the Hebrew prophet Jeremiah on failing to dinosaurs amid the tech bubble for example – so again, leopards
persuade an evil shepherdess to change her ways. are often to be found among veteran investors whose style is
Our subject here is fund managers rather than evil shepherdesses, ingrained and will not change however the market behaves.
and we believe that in this particular field, obstinacy can be a Within our portfolios, a good example of a couple of leopards on
major virtue: we are seeking investment leopards as it were. the UK equity side are Nick Train, who runs Lindsell Train UK
One of the key tenets behind our multi-asset proposition is Equity, and Fidelity Special Situations manager Alex Wright.
that when analysing and selecting fund managers, consistency Train is a classic quality growth manager who rarely adds
of performance over every time period is all but impossible; new stocks to his portfolio – Manchester United was a recent
consistency of process however is an absolute necessity. purchase – while Wright is from the Fidelity contrarian value
Diversification is a key part of our approach and that applies to school, following in the footsteps of long-term Special Situations
manager style as much as it does to asset class or geography: just manager Anthony Bolton.
as we want to combine assets that perform in different conditions, When analysing Train, we find a manager whose success
we look to populate our portfolios with a range of managers on the has clearly been dependent on maintaining a buy and hold
same basis. At the core, this comes down to the usual value versus discipline, looking to find great brands and then letting them
growth/quality question but there can be considerable variations compound over time. His near £6bn UK Equity Fund has just 20
when you consider market cap and geography. holdings and while such a strategy can be vulnerable to shifts in
So how do we go about finding these fund management market sentiment, we are confident Train will never veer from
leopards? We blend art and science in our process, with the his tried and tested approach.
quantitative side focusing on areas such as return-based style Similar discipline is clear in Wright’s approach, with the
analysis to understand how funds are likely to behave in certain manager looking to find stocks unloved by the rest of the market
market conditions. and therefore trading at discounted valuations. This can mean
Time is another consideration and we feel it is important to ignore periods where the fund can lag but over time, if done well, such
short-term numbers when investing in active managers for the a philosophy can improve the balance of risk and reward by
long term. To bear this out, we analysed top-quartile funds in the limiting downside and maximising potential upside.
IA’s UK All Companies sector over ten years for example to see Again, with contrarianism baked into Wright’s philosophy, we
how they performed against the FTSE All-Share over rolling one, are confident the fund will maintain its style bias whatever the
three, five and seven-year periods within that decade. market conditions.
All the funds beat the index over seven-year periods and the Both funds fulfil very clear roles within our portfolios and any
vast majority over five-year, but as the timeframe gets shorter, fluctuation away from the stated style would be a much clearer
performance is less consistent. In one-year rolling periods over sell signal for us than short-term performance-related issues.
the decade, 30% of returns from the strongest funds over ten We added value exposure across our range earlier this year for
years lag the All-Share. example, taking advantage of attractive valuations in line with a
All this work typically gives us a shortlist of funds and managers historically wide disparity between growth and value. While that
and we have devised the SPURS system – namely Stamina, call has yet to pay off for our portfolios in performance terms, we
Process, Understanding, Resoluteness and Stimulus – to would certainly not want the funds we added to change tack and
highlight what we look for on the qualitative side. start chasing after growth.
Ultimately, we favour patient, long-term investors from a similar If diversification is to work properly, all the underlying
mould to ourselves and prize those who can point to endurance components need to maintain their style integrity; otherwise we
and experience. We prefer our managers to have run money will most likely find an alternative that can.
22 Quarterly Fund UpdateHC Verbatim Portfolio 5 Income Fund
HC Verbatim
Portfolio 5 Income Fund
Market Review
After modest returns in the first three quarters of 2018, stock
markets around the world had a very negative – and volatile – end
of the year leaving the MSCI All Countries World Index down
12.8% over the period. This represents the first year of negative David Palmer
returns for the US market since the credit crisis. Europe and Asia Sarasin & Partners LLP
also posted double-digit losses for the year as a whole. Against this
backdrop, government bonds had a better quarter as investors
sought to reduce risk. Within fixed income, corporate bond credit
spreads generally widened over the period.
The US Federal Reserve was a key driver of this negative
performance, having persistently drained liquidity in a period John Godley
when risk appetite had been high then spooked equity markets Sarasin & Partners LLP
by issuing poor forward guidance. This was especially significant
given that US equities have hitherto been the main driver of
returns. This backdrop combined with weaker Chinese growth Fund Managers
and a decline in business confidence particularly in the UK and
Europe to create negative headwinds for Global Equity Markets. David Palmer and John Godley are the
Government bonds, in contrast, had a better quarter as investors joint managers of the HC Verbatim 5
looked to reduce risk given the late cycle environment. Within Income Fund. With nearly 60 years
fixed income, corporate bond credit spreads generally widened of combined global equities and fixed
which was another headwind. income experience, they bring a wealth of
investment expertise to the management
of the HC Verbatim 5 Income Fund. David
Palmer has managed the fund since 2014,
with John Godley joining in 2017 to co-
manage the fund.
John Godley is a partner of Sarasin
& Partners, where he is manager of
Sarasin’s Income Funds. David Palmer is
a Fund Manager at Sarasin, where he is
responsible for the Sarasin IE GlobalSar
Income & Dynamic Funds. Sarasin &
Partners LLP are a London based asset
management group best known as a
market leader in thematic investment
strategies and for long-term income and
dividend management across multi-asset
and equity mandates.
24 Quarterly Fund UpdateOutlook
Given the denouement of QE and that we
are almost 10 years into the recovery cycle,
it is reasonable to expect that volatility
in markets will continue. The stimulus of
US tax cuts and public spending is likely
to evaporate and it is difficult to gauge
whether the trade tensions between China
Fund Review and the US will intensify or ease in 2019.
The fund fell 3.55% over the quarter and whilst it is always Hitherto developing economies have been
disappointing to report negative returns, it did perform well particular beneficiaries of free trade and
against its benchmark, which fell 7.11%. Preserving capital on the uncertainties have reduced the pace
the downside is always a priority for Income mandates and we of investment. All the same, these nations
feel that the relative performance during this difficult period is a could account for two-thirds of global GDP
vindication of our process. growth over the next decade as they adopt
new technology across multiple industries.
Within the portfolio, CME Group was the best performer over
the quarter. The company owns and operates the world’s largest The final quarter rally in core bond markets
options and futures exchange and is well-placed to benefit from the – i.e. US Treasuries, German Bunds and
growth in exchange traded and cleared products around the world. UK Gilts – reminded us that bonds still
The firm also enjoys a monopolistic position in the majority of have a role to play if you want to limit
the products it offers to clients. Volatility drives demand for these volatility. That said, bonds are likely to be
products and the company performed well as volumes picked up. an impediment to overall returns while
there is insufficient income to compensate
In addition, ENEL, the Italian power company, maintained its for capital loss. Corporate credit spreads
strong performance from November. The company benefitted will probably remain under pressure and
from good news announced by the Italian regulator, who passed we remain underweight. We still expect
new allowances for electricity and gas transmission and gas to add most value from equities and hold
distribution. There were further tailwinds as economic and the view that the outlook remains fair for
political concerns around Italy abated. good quality companies operating in the
On the flipside, energy companies were amongst the worst right areas of the global economy, despite
performers this quarter with the fall in the oil price depressing the the challenges ahead. Our analysts are still
sector. Accordingly, Royal Dutch Shell and Total performed poorly finding many genuine thematic growth
over the period, although the outlook for these companies remains opportunities that stand out in a slower
positive, despite the challenging environment. growth world.
Although the US Fed has persisted in
tightening monetary policy, we believe it
can now afford to be patient with inflation
relatively quiescent. However, we remain
extremely vigilant in assessing whether
US wage growth is going to run ahead of
expectations. We maintain, therefore, our
strategy of being underweight bonds and
neutral global equities. There will have to
be refinements though, such as periodically
holding abnormal levels of cash to exploit
the investment opportunities that will arise
with greater market volatility.
Q4 2018 25HC Verbatim Portfolio 5 Income Fund
STRATEGIC ASSET ALLOCATION TOP FUND HOLDINGS
The Strategic Asset Allocation shown is valid as at 31/12/2018
Sarasin Global Higher Dividend Fund Sterling Hedge 18.88%
Sarasin Global Higher Dividend Fund I Inc 9.37%
Global Equity 60%
UK Corporate Bonds 40% Sterling 2.72%
Royal Dutch Shell Plc - B Shs 2.03%
Schroder Oriental Income Fund 1.91%
CME GROUP INC 1.67%
INVESTOR AB-B SHS (SS) 1.52%
National Grid Plc 1.50%
Swedbank AB 1.46%
ENEL SPA 1.34%
SQN ASSET FINANCE INCOME FUN 1.33%
TOP 10 THEMED EQUITIES
FOR QUARTER TO 31 DECEMBER 2018 PFIZER INC 1.31%
UNIBAIL-RODAMCO SE & WFD 1.27%
% of Themed
Security Name Theme Compass Group Plc 1.20%
Equites
SIMON PROPERTY GROUP INC (US) 1.20%
ROYAL DUTCH SHELL PLC-B SHS 6.0 Income Stock
CME GROUP INC 5.7 Automation
PFIZER INC 5.3 Ageing
ENEL SPA 4.8 Climate Change
BRIDGESTONE CORP 4.2 Income Stock HC VERBATIM 5 INCOME YIELD
TOTAL SA 4.2 Income Stock
1 YR 3 YR 5 YR
TAIWAN SEMICONDUCTOR-SP ADR 4.0 Digitalisation
AIR PRODUCTS & CHEMICALS INC 3.7 Income Stock 3.72% 4.04% 3.84%
GIVAUDAN-REG 3.4 Evolving Consumption The yield calculation assumes an investor has held shares for
INVESTOR AB-B SHS 3.3 Ageing the full period of calculation and receives the full distribution.
TOP 5 CONTRIBUTORS TO PERFORMANCE BOTTOM 5 CONTRIBUTORS TO PERFORMANCE
Contribution Contribution
Security Security
to Return to Return
Cme Group Inc 0.26 Total Sa -0.20
Enel Spa 0.18 Royal Dutch Shell Plc - B Shs -0.26
IFC 6.45 08/10/2020 Corp 0.06 Unibail-rodamco Se & Wfd -0.28
Bridgestone Corp 0.05 Sarasin Global Higher Dividend Fund I Inc -0.68
Sequoia Economic Infrastructure Income Fund Ltd 0.03 Sarasin Global Higher Dividend Fund Sterling Hedge -1.64
26 Quarterly Fund Update1YR CUMULATIVE PERFORMANCE DISCRETE ANNUAL
Performance from 31st December 2017 – 31st December 2018 PERFORMANCE
1.0%
HC Total returns
0.0% Verbatim for the
Portfolio 5 periods
-1.0%
Income B shown
-2.0% Inc (Sterling)
-3.0% 01/01/2018 -
-3.73%
31/12/2018
-4.0%
01/01/2017 -
-5.0% 7.83%
31/12/2017
-6.0%
01/01/2016 -
13.74%
-7.0% 31/12/2016
-8.0%
01/01/2015 -
-0.25%
31/12/2015
17
18
18
18
18
18
18
18
18
18
18
18
18
20
20
20
20
20
20
20
20
20
20
20
20
20
2/
1/
2/
3/
4/
5/
6/
7/
8/
9/
0/
1/
2/
/1
/0
/0
/0
/0
/0
/0
/0
/0
/0
/1
/1
/1
29
29
28
31
30
31
30
31
31
30
31
30
31
01/01/2014 -
10.64%
31/12/2014
Discrete performance data is gross of income
5YR CUMULATIVE PERFORMANCE distributions.
Performance from 31st December 2013 – 31st December 2018
25.0%
CUMULATIVE
20.0% PERFORMANCE
Since trading
15.0% 27.9%
(01/03/10)
10.0% 1 Year to
-7.0%
31/12/2018
5.0% 5 Year to
10.0%
31/12/2018
0.0%
Cumulative performance data is net of
income distributions.
-5.0%
13
14
14
15
15
16
16
17
17
18
18
20
20
20
20
20
20
20
20
20
20
20
2/
6/
2/
6/
2/
6/
2/
6/
2/
6/
2/
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
31
30
31
30
31
30
31
30
31
30
31
Source for Performance Graphs: Apex Fund Services (UK) Ltd. Fund data based on B Accumulation
shares, percentage growth total return mid to mid in UK Sterling, after all income has been distributed.
Past performance is no guarantee of future performance.
LARGEST EQUITY CONTRIBUTORS
TO OVERALL PERFORMANCE
FOR QUARTER TO 31 DECEMBER 2018
CME GROUP INC 0.3%
ENEL SPA 0.2%
BRIDGESTONE CORP 0.1%
Q4 2018 27The impact of the end of QE
By David Palmer
Co-fund manager HC Verbatim Portfolio 5 Income Fund
None of us want to be in calm waters all our lives…
Jane Austen (Persuasion 1817)
David Palmer, co-fund manager for the HC Should we worry about rising bond spreads (especially in
Verbatim Portfolio 5 Income Fund, answers high yield credit markets)?
Yes – investment grade bond spreads (the additional yield they
questions on the impact of the end of QE on afford over government bonds) have now widened back to the
market volatility and equity valuations. levels we saw in mid-2016, with all of the tightening that resulted
from Trump’s election and his ‘business –friendly’ agenda more
After nearly a decade of rising equity prices, was a than fully reversed. The IMF for example is concerned that while
‘down year’ well overdue? governments and consumers have reigned in deficits, absolute
After nine US rate rises and the steady dial-back of central levels of corporate debt are still high (especially in Asia). The
bank ‘QE’, investors are now starting to feel the swell. While US leveraged loan market in particular is showing that some excesses
corporate earnings rose by more than 20% in 2018, thanks to of 2008 are again re-emerging. This supports a deliberately
tax cuts and a domestic growth surge, equity market multiples conservative bond strategy at Sarasin – our balanced funds
fell by even more – the result is the first year of negative returns for example target an average credit rating of A+, and we are
for the US market since the credit crisis and double-digit losses increasingly cautious of high yield and other specialist strategies.
for Europe and Asia. For the first year in seven, US equity prices
Brexit, budget woes and the prospect of an Italian
underperformed US corporate profits – so yes, market valuations
recession are not encouraging but could 2019 herald a
are normalising but after a very strong 2017.
surprise renaissance for the European economy?
December’s market volatility was extraordinary – is The short-term outlook is not promising; German inflation
something more sinister happening? recently slowed to the weakest in eight months, while output
Thin holiday season trading volumes likely exaggerated the contracted in two of the three largest economies in the region
moves but more frequent bursts of volatility across asset classes in the third quarter, with Italy close to technical recession. All
(we saw them in February too) will be a fact of investment life of this suggests that the deflationary forces that have plagued
as monetary policy is regularised. Central bank support and the eurozone remain a threat just as the European Central Bank
near-zero rates have kept equity volatility (measured by the steps back. Further fundamental reform could be possible in
VIX index) at an average of 15.3% over the last five years, less 2019 after European parliamentary elections in May with new
than three-quarters of the average level that prevailed in the heads of the Commission and ECB. With Chancellor Merkel’s
twenty years prior to that, so some normalisation is inevitable. successor also now assured, a renewed urgency for reform
Typically, tighter money means lower valuations and lower real (especially financial) could emerge. This has the potential to
returns across all asset classes– so I fear 2018 was almost ‘text stabilise the selloff in European banks (currently trading at just
book’ in terms of the market response. half the price-book ratio of their US counterparts) and hence to
drive a broader re-rating of European equities – in short value is
The US President’s criticism of Jerome Powell, chair of
clear but investors will need (even more) patience…
the Federal Reserve, breaks a number of taboos – will this
hurt world markets? What is your biggest worry for 2019?
Donald Trump’s blizzard of tweets criticising the US central bank The shorter maturity segment of the US treasury yield curve is
is clearly attempting to change the debate about how US monetary gradually inverting, indicating that we are ‘late’ in the economic
policy should be conducted – it leaves the ‘Fed’ less insulated from cycle and hence face a rising risk of recession, although it does not
politics and it’s natural for investors to demand a premium for provide a precise timetable. My growth worries though are not in the
this. There is rumour that President and Chairman will meet and West, where unemployment is low and consumer confidence and
‘make up’ and there is precedent for this - Greenspan, Bernanke corporate profits are still robust, but in China. Economic visibility
and Yellen all attended such meetings but more to inform the is poor with manufacturing survey data now looking consistently
President than to answer criticism. So yes, Trump’s comments are weak. In short, global growth ‘ex-China’ will be difficult to achieve
contributing to volatility but as long as inflation remains under – hence, a more defensive equity strategy with an emphasis on
control (and the President would say we have him to thank for low sustainable dividend growth alongside higher than normal cash
oil prices), the risk is probably not yet material. positions remains our broad policy until we know more.
28 Quarterly Fund UpdateYou can also read
