Market update

January 2020

Brexit clarity?

The Conservative party’s General Election victory in December has paved the way for the next stage of Brexit to get underway. Parliament finally agreed the EU Withdrawal Bill and we will officially be leaving the EU at the end of January. Well, kind of. 2020 will become a transition period as the Government attempts to agree what our future relationship with the EU will look like. We can expect plenty of movements in markets throughout 2020 as news comes out on how talks are progressing.

Trade wars – phase one the first of many

Earlier this month the US and China finally signed Phase 1 of their trade agreement. However, this isn’t the end of a potential conflict, the issues covered in Phase 1 were seen as ‘quick wins’ for both sides and effectively take us back to the position both countries were in 4 years ago with reduced tariffs and China purchasing more US Goods.

We would expect trade issue to take a back seat in the lead up to the US election in November as President Trump tries to sustain a strong US economy, however if he is re-elected, further tariffs are a possibility as he takes aim at both China and Europe to reduce the US trade deficit.

2019 was a strong year

2019 was an incredibly strong year for investment markets with all main asset classes showing a positive return over the period despite a backdrop of uncertainty surrounding a potential trade war between the US and China, President Trump facing possible impeachment, and the ongoing confusion over Brexit.

US stocks were the strongest performer returning around 30%. We don’t expect to see the same level of growth in 2020, however there are still plenty of opportunities to add value which is why we still favour growth assets such as equities.

Our view

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 and we have reduced our overweight position. The main risks still come from Brexit and US-China trade tensions.

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.

Governance

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.

For more information please speak to your financial adviser.

Read our previous market updates