Investment Update "Classic" Cautious Portfolio August 2021 - Russell Investments
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RUSSELL INVESTMENTS Investment Update “Classic” Cautious Portfolio August 2021 Russell Investments may trade a portion of the Fund’s assets based on a model portfolio provided by the investment advisor. By employing this emulated portfolio approach, the Fund leverages off the implementation capabilities of Russel Investments in order to manage the funds in an efficient manner.
Contents
The cycle of market emotions
Over the lifetime of an investment you will experience a range of different emotions.
Investment success over the long term depends on you working with your adviser to ensure
this emotional journey does not lead to decisions that could derail your investment journey.
This section illustrates that cycle in terms of historical periods.
Market outlook
This section looks at the current economic environment and what factors are driving markets.
We also describe how we have recently adapted our multi-asset portfolios to adapt to this
environment.
Model portfolio fact sheet
This section describes the model portfolio/s you are invested in, the makeup of the portfolio
in terms of multi-manager investment funds, and the performance of the portfolio over time.
Capacity for loss guide
We’d like you to have a clear picture of the returns you may experience in this investment, so
this section illustrates the typical returns your investment portfolio may generate over the
coming years as well as a transparent look at what performance the portfolio has delivered
over 12-month periods, since inception.
Model portfolio performance
A look at cumulative returns across the ten model portfolio range allows you to see the
relationship between increasing risk and the resultant returns in rising markets (such as 2012)
as well as more challenging times (such as 2011).
Russell Investments // Cautious Portfolio Monthly Update
2The cycle of market emotions
Latest month end data as at 31 December 2020. Illustration purposes only.
Market cycle returns calculated using Ibbotson U.S. Equity Total Return Index from 1971–1978 and Russell 3000® Index from 1979–2020.
Any past performance is not necessarily a guide to future performance. Indexes are unmanaged and cannot be invested in directly.
Russell Investments // Cautious Portfolio Monthly Update
3Market Outlook
Market Review – August 2021
➢ The MSCI World Net Index advanced 3.6% in August. Despite the worrying rise of new coronavirus cases owing to the
Delta variant of Covid-19, the continued rollout of vaccines and the prospect for a booster jab, helped the global
economy to broadly strengthen over the month. This increased inflationary pressures and major central banks indicated
that they would intervene if the pace of the economic recovery were not to moderate. However, they remained
accommodative for the time being. Markets were unsure how to interpret the Chinese government’s clampdowns on
several sectors, notably technology, whilst geopolitical tension rose after the US orchestrated its withdrawal of troops
and others from Afghanistan. Over the period, the US dollar strengthened slightly whilst oil prices declined.
➢ In the US, the latest non-farm payrolls beat expectations with a rise of 943,000 in July and the unemployment rate ticked
lower to 5.4%. Meanwhile, second estimates for second quarter GDP growth indicated an expansion of 6.6% QoQ,
slightly higher than the 6.5% in the advance estimate but still below forecasts of 6.7%. Additionally, core inflation moved
to a multi-year high of 4.3% YoY in July, testing the Federal Reserve’s (Fed) supportive monetary stance. Consequently,
at the Jackson Hole Economic Symposium, Fed Chair Jay Powell argued that it “could be appropriate to start reducing the
pace of asset purchases this year”. According to the minutes, this position reflected the views of the other Fed policy
makers, who drew a similar conclusion in the latest Federal Reserve Open Market Committee meeting. Additionally, the
US House of Representatives approved the framework of President Joe Biden’s $3.5 trillion domestic package. This will
give the US economy a boost but will almost certainly also add further inflationary pressures.
➢ Across the pond, the Bank of England kept its interest rate unchanged, but also revealed that a modest tightening of
monetary policy could be necessary in the next two years to keep inflation under control. This comes however, as the
latest core inflation rate dropped to 1.8% YoY in July. In other news, UK’s consumer confidence surpassed pre-pandemic
levels for the second month in a row, as people continued to spend their pent-up money on beauty, clothes and
hospitality during the mid-summer months. Minutes from the European Central Bank Monetary Policy Meeting Accounts
indicated that some members disagreed with the new guidance on future monetary policy, as it risked underestimating
the effects of rising inflation. A flash print for euro zone core inflation indicated a rise to 1.6% YoY in August, whilst
headline inflation climbed to 3.0% YoY this month.
➢ The MSCI Emerging Markets (EM) Index increased 3.7%. China’s Central Committee and the State Council issued a five-
year plan to bolster regulations for sectors such as technology and health care. The aim is to “meet people’s ever-
growing demands for a good life”. The State Administration for Market Regulation also published draft rules targeting
unfair competition practices. This comes as Chinese authorities cracked down on several sectors (e.g. technology,
education) recently, which spooked investors. President Xi Jinping also called for stronger “regulation of high incomes”.
In economic news, the People’s Bank of China kept its 1-year (3.85%) and 5-year (4.65%) rates unchanged. In Mexico,
state-controlled oil company Pemex struggled with a fire at an offshore oil platform which unfortunately claimed the
lives of five workers. This fire also reduced the country’s oil output by roughly a quarter, helping send oil prices higher in
the last week of August. Mexico’s second quarter GDP growth rate expanded by 1.5% QoQ, missing expectations but
marking the fourth consecutive quarter of growth. In Brazil, the country’s central bank enacted its biggest interest rate
rise in almost two decades this month, with a 100-basis point increase to 5.25%.
Russell Investments // Cautious Portfolio Monthly Update
4Market Outlook
Strategist’s Outlook
Equities: Preference for non-U.S. equities
➢ The post-vaccine economic recovery should favour undervalued cyclical value stocks over expensive technology and
growth stocks. Relative to the US, the rest of the world is overweight cyclical value stocks.
Fixed income: Government Bonds still expensive
➢ We view government bonds as expensive and think that yields will be under upward pressure as output gaps close and
central banks look to taper back asset purchases.
Currencies: U.S. dollar likely to weaken
➢ The US dollar should weaken once investors have fully priced in Fed tightening expectations and as the global economic
recovery becomes more entrenched. The dollar typically gains during global downturns and declines in the recovery
phase. The main beneficiary is likely to be the euro, which is still undervalued. We also believe British sterling and the
economically sensitive commodity currencies - the Australian dollar, New Zealand dollar and the Canadian dollar - can
make further gains, although these currencies are no longer undervalued from a longer-term perspective.
Russell Investments // Cautious Portfolio Monthly Update
5AUGUST 2021
Cautious Portfolio
Russell Investments Comprised mainly of investment strategies designed to weather turbulent market
Client Portfolio Manager conditions, the Cautious Portfolio is best suited to more risk-averse investors that want
their money to work harder than bank deposits. Fixed income and absolute return type
Using a multi-asset approach, our
investments feature heavily, especially those designed to generate positive returns
Model Portfolios are globally without exercising a greater amount of investment risk. The portfolio features small
diversified. Each one provides allocations to global equity and inflation-linked investments such as property,
exposure to a mix of shares, bonds commodities and infrastructure; however the total allocation to these investments is
and alternative investments
delivered by a variety of underlying just 23%.
money managers and investment
styles.
The Cautious Portfolio within our Model Portfolio Range
This careful blending emphasises
return potential whilst attempting
to manage risk and may help
provide more consistent returns
over the long term. This
diversification means that your
investment is working for you no
matter what investment approach
or style is in favour at any given
time.
Inception to Date Cumulative Return
35%
161
30%
151
25%
141
20%
15%
131
10% 121
5% 111
0% 101
-5% 91
Jul-18
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jan-16
Jul-16
Jul-17
Jul-19
Jul-20
Jan-21
Jul-21
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Oct-14
Jan-15
Jan-17
Jan-18
Jan-19
Oct-19
Jan-20
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Apr-20
Oct-20
Apr-21
Portfolio Quarterly Return Inflation (CPI) Portfolio Cumulative Return
Source: Russell Investments, net returns in GBP from 01/02/2010 to 31/08/2021. Any past performance figures is
not a guide to future performance.
Russell Investments // Cautious Portfolio Monthly Update
6Capacity for Loss
Cautious Model Portfolio
5% UK Growth Assets
14.5% International Growth Assets
Real Assets
5.5%
Defensive Assets
Russell Risk Score 2 / 10 Projected Annual Return (%) 3.9
75% DT Risk Score 3 / 10 Since Inception Annual Return (%) 3.7
Max 12-month Return (%) 13.76 Projected Annual Volatility (%) 5.4
Min 12-month Return (%) -4.4 Since Inception Annual Volatility (%) 4.2
Historic Returns
The number of times a portfolio has experienced a given return (horizontal axis) in any 12-month period since
launch. Standard deviation is applied to the annual rate of return of an investment to measure the investment’s
volatility, it is a statistical measurement that illustrates historical volatility. For example, a volatile stock has a
high standard deviation, while the deviation of a stable stock is lower. A large dispersion indicates how much the
return on the fund is deviating from the expected normal returns.
-25.0 -15.0 -5.0 5.0 15.0 25.0 35.0
18
16
14
Actual Annual Modelled Annual
12
Return Return
Frequency
10
8 -2 s.d -1 s.d +2 s.d.
6
4
2
0
-25 -23 -21 -19 -17 -15 -13 -11 -9 -7 -5 -3 -1 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
Annual Return
Source: Russell Investments, net returns in GBP from 01/02/2010 to 31/08/2021. Any past performance figures is
not a guide to future performance.
Russell Investments // Cautious Portfolio Monthly Update
7Model Portfolio Performance
Performance data as at 31 August 2021
This table shows the performance of all ten Russell Investments Model Portfolios for different periods.
Cumulative Performance (%) PA (%) Discrete Performance (%)
1 3 1 3 5 Since 30/06/21- 30/06/20- 30/06/19- 30/06/18- 30/06/17-
Portfolio Name
Month Months Year Years Years launch* 30/06/20 30/06/19 30/06/18 30/06/17 30/06/16
Secure 0.3 2.2 6.3 13.8 16.8 2.9 6.3 1.9 4.3 1.0 3.4
Cautious 0.5 2.5 8.6 16.1 21.6 3.7 8.8 1.4 4.5 1.7 4.9
Conservative 0.8 2.8 11.1 18.1 26.5 4.6 11.5 0.4 4.6 2.5 6.8
Moderate 1.0 3.0 13.6 20.4 31.7 5.4 14.1 -0.2 4.8 3.2 8.5
Balanced 1.3 3.3 16.6 23.1 37.5 6.2 17.4 -1.0 5.0 4.0 10.2
Progressive 1.5 3.6 18.8 24.6 42.1 7.0 19.8 -1.9 5.0 4.8 12.0
Adventurous 1.8 3.8 21.9 26.3 47.0 7.7 22.9 -3.2 5.0 5.5 13.7
Growth 2.0 4.1 24.1 28.1 52.4 8.5 25.4 -3.9 5.1 6.3 15.7
Aggressive 2.3 4.3 27.2 29.5 57.4 9.3 28.5 -5.3 5.2 7.0 17.5
Aggressive Plus 2.5 4.6 29.4 31.2 62.2 9.9 31.0 -6.1 5.3 7.6 19.1
This table shows the performance of some common asset classes for different periods.
Cumulative Performance (%) PA (%) Discrete Performance (%)
1 3 1 3 5 Since 30/06/21- 30/06/20- 30/06/19- 30/06/18- 30/06/17-
Common indices
Month Months Year Years Years launch* 30/06/20 30/06/19 30/06/18 30/06/17 30/06/16
Cash
0.0 0.0 0.1 1.3 2.0 0.5 0.1 0.6 0.7 0.4 0.3
Bank of England Base
UK Gilts
-0.8 2.7 -1.8 11.8 7.6 4.9 -6.3 11.3 4.9 1.9 -0.9
ICE BofA UK Gilts All Stocks
Global Credit
Bloomberg Global Agg Credit -0.2 2.1 2.2 16.7 16.4 4.5 2.7 5.5 7.4 -0.6 1.5
GBP Hedged
UK equities
2.7 3.4 26.9 11.4 33.3 7.6 21.5 -13.0 0.6 9.0 18.1
FTSE All Share
Global equities
2.7 6.9 29.6 45.6 88.7 11.4 35.9 1.9 5.1 9.7 18.3
MSCI ACWI GBP Hedged
Emerging Markets
MSCI Emerging Markets Index 3.7 -1.0 17.8 25.2 56.1 6.9 26.0 -0.5 5.0 6.5 27.4
Net
Property
FTSE EPRA/NAREIT Global 2.4 9.5 29.7 17.5 24.8 10.2 19.5 -13.7 11.7 3.9 3.1
Developed
Source: Russell Investments as at 31/08/2021 (% change, GBP). Performance figures for the Russell
Investments Model Portfolios are calculated using the performance of the underlying FP Russell
Investments ICVC funds (C class shares) during the same period. The performance of the Model
Portfolios is calculated using the current portfolio weightings of each fund as shown in the brochure
“Helping you achieve outcomes that matter” dated June 2017. The since launch date (31/01/2010) is
the date that we launched the Russell Investments Model Portfolios. 3 and 5 year figures are
cumulative, since inception annualised. All performance quoted net of C share class fees. Performance
figures are calculated assuming a quarterly rebalance. Any past performance figures are not necessarily
a guide to future performance.
Russell Investments // Cautious Portfolio Monthly Update
8FOR MORE INFORMATION:
Call Russell Investments at +44(0)207 024 6601 or email ukadviser.support@russellinvestments.com
IMPORTANT INFORMATION:
Unless otherwise specified, Russell Investments is the source of all data. All information contained in
this material is current at the time of issue and, to the best of our knowledge, accurate. Any opinion
expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not
constitute investment advice.
Your clients must consult the prospectus and Key Investor Information Document (KIID) before
deciding whether to invest.
Please note that the value of investment and the income derived from them may go down as well as
up and an investor may not receive back the amount originally invested.
Any data on past performance, modeling or back-testing contained herein is no indication as to future
performance. No representation is made as to the reasonableness of the assumptions made within or
the accuracy or completeness of any modeling or back-testing.
Russell Investments may trade a portion of the Fund’s assets based on a model portfolio provided by
the investment advisor. By employing this emulated portfolio approach, the Fund leverages off the
implementation capabilities of Russel Investments in order to manage the funds in an efficient
manner.
FP Russell Investments ICVC (the “Company”) is an investment company with variable capital
incorporated in England and Wales under registered number IC000708 and authorised by the Financial
Conduct Authority with effect from 22 October 2008. FundRock Partners Limited (formerly Fund
Partners Limited) is the Authorised Corporate Director (the “ACD”) of the FP Russell Investments ICVC
and is authorised and regulated by the FCA. Registered office: 52-54 Gracechurch Street, London EC3V
0EH
Russell Investments Limited has been appointed as the investment manager and distributor in respect
of the Company. Applications for shares in the Company are subject to the terms and conditions set
out in the Prospectus, Key Investor Information Document (KIID), Supplementary Information
Document (SID), instrument of incorporation and latest annual and half-yearly long reports of the
Company. Investors and potential investors must read the KIID and are also advised to read the
remaining documents (and in particular the risk warnings) before making an investment in the
Company. Copies are available free of charge on request from the ACD and Russell Investments
Limited.
This document is issued by Russell Investments Limited, a company incorporated in England and Wales
under registered number 02086230 and with its registered office at: Rex House, 10 Regent Street,
London SW1Y 4PE. Telephone 44 (0)20 7024 6000. Authorised and regulated by the Financial Conduct
Authority, 12 Endeavour Square, London E20 1JN.
PRI-00594-21-01-2022
Russell Investments // Cautious Portfolio Monthly Update
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