US markets bounced back from a poor month in May to hit record levels in June. Donald Trump tweeted that trade talks between the US and China were set to resume after a productive meeting between the two countries at the G20. There was also an announcement that no additional trade levies would be implemented before the next round of talks. This, along with the likelihood of US interest rate cuts, boosted the global economy.
Global markets have had an extremely strong 6 months to begin 2019. The main drivers have been the Tech stocks the majority of us have probably used at some point this year – Facebook, Amazon, Netflix and Google. As we move towards a society where people care more about the environmental impact of their investments, these types of stocks are becoming more popular than old favourites like BP and Shell.
Boris does Brexit
At the time of writing, it has just been announced that Boris Johnson has won the Conservative leadership race and is therefore the UK’s new Prime Minister. The only thing this guarantees in terms of Brexit is further uncertainty. It’s unclear at this point how this will affect future negotiations with the EU, they’ve intimated that they’re unwilling to come back to the table but this could change with Johnson’s threat of being willing to walk away without a deal. This could lead to another General Election as we wouldn’t expect either the current deal or No Deal to be ratified by Parliament.
The market is predicting a low level of growth, but we do believe there are some reasons for positivity. We continue to be supportive of stocks but remain mindful of the potential risks in the current market. The main risks still come from Brexit uncertainty in the UK and the potential of trade talks between the US and China collapsing completely. We also believe the US Federal Reserve will cut interest rates at least once between now and the end of the year which should benefit Global markets.
Investing with us
Our key goal is to deliver good outcomes for our customers. We do this by following our core beliefs:
- Pensions are long term investments
While it can be hard to watch large market drops, especially if the value of your savings is falling, it’s important to remember that investing for retirement is a long term game. It’s very normal for an economy to go through phases of expansion and contraction.
In fact, over the long run there is a recession every five to ten years. We think of these cycles in terms of waves of growth and inflation, and consider which investments do best when growth is strong or weak, and when inflation is falling or rising. Our investment experts analyse and understand where we are in that cycle and which types of investments we should be investing in within the portfolio mix. This is called the short term view and we do this on a day to day basis so that we can try to maximise returns and avoid some of the losses.
Falling markets can be buying opportunities, particularly when you are planning to invest for a long time period. We see the current market falls as potential buying opportunities for equities. The multi asset portfolios are currently holding slightly more equities than average, having bought on the recent dips. We’re also holding more corporate and high yield bonds.
- Greater diversification
We believe that investing in a wide range of asset classes will result in more consistent performance across a wide range of economic conditions. This spread of different investments helps to reduce the risk of having all your eggs in one basket.
The Governed Portfolios are designed for investors who are saving into a pension and aim to maximise returns above inflation within a defined risk framework and term to retirement.
The Governed Retirement Income Portfolios (GRIPs) are designed for customers who are taking money out of their pension on a regular basis and aim to maximise returns above inflation to support sustainable, regular income withdrawals for a range of risk profiles. The portfolios hold a wide range of investments, including company shares, property, bonds, commodities and cash in order to help them meet their objectives.
We believe that all investment options should be monitored on a regular basis, and this is a core part of what we do for our customers. All the portfolios are monitored on an ongoing basis by our experts to ensure they deliver in line with their objectives. You can keep an eye on how your investments are performing using our online service.
If you are in any doubt about the suitability of any particular type of investment, you should seek professional financial advice. Advisers may charge for providing such advice and should confirm any costs beforehand.
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You should consult with an adviser before you make any changes to your investment, and remember that the value of your plan can go up as well as down, and you may get back less than you originally paid in.
Q2 Investment outlook
My name is Trevor Greetham, I'm head of Multi-Asset at Royal London.
The financial markets have been very volatile over the last year or so. We saws a bit of a roller coaster with share prices dropping last spring, rising over the summer and dropping very sharply going into Christmas. This year again share prices have gone up quite strongly.
The reason the financial markets can’t really make their minds up is it’s a mixed picture. We’re quite late in the US economic cycle in particular interest rates have been going up for a while and we see some good news and some bad news, We expect this two way pull to continue for some time, at the moment we are mildly positive on company shares because we’re seeing signs of additional stimulus in China and the fact that interest rates have at least stopped going up in America coming through. But we are keeping our eye on 2020 because the housing market in America has started to slow down in response to about 2 years of interest rate rises and if that carries on it could threaten growth next year.
Closer to home of course Brexit remains an issue and it could end in many different ways. On the one hand we could leave the European Union without a deal in which case I would expect the pound to drop quite a bit further than it has already. We could cancel Brexit altogether in which case the pound would go up and this has an impact on member’s portfolios because you have some of your money invested overseas and therefore the exchange rate matters. The good news is that all the portfolios are invested across a range of different asset classes likely to do well in different circumstances and that diversification is spreading the investments across lots of different asset classes and should result in a degree of stability.
So summing up there lots of risks out there on balance. We are moderately positive at the moment. We think global growth will surprise a little bit positively this year and next year we are a bit more concerned so we’re keeping a very close eye on things. We’ll keep you updated on the financial markets and the way we are positioning portfolios as the year progresses
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