We are delighted to announce that during November we reached £20 billion of assets under management in the True Potential Portfolio solution. We would like to thank you, our investors, for your continued support.
Building on October’s positive returns, November has been a good month for the True Potential Portfolios with all ten portfolios providing positive returns.
Key developments over the month being:
- The easing of US headline inflation has continued and there has been a softening of core inflation for October.
- Earnings have been slow to reflect moderating economic growth, suggesting more downward pressure to come.
- The 20th China Communist Party Conference emphasised China’s commitment to domestic security.
What were the Key Themes in November?
- Market expectations for US interest rates remain consistent with those discussed last month i.e. for interest rates to peak in the Spring of 2023. US interest rates are expected to peak at lower levels compared to earlier in 2022. The Federal Funds Rate is expected to peak at 5%, compared to 5.2% in early November. Recent commentary from some voting members of the Federal Reserve has guided to less aggressive tightening as the Fed takes account of recent aggressive rate hikes.
- Our view is Economic Growth is slowing and will be below long run historical levels into next year for developed markets. Labour markets remain strong and guidance from company earnings reports does not suggest widespread job cuts are planned. We know consumer spending power is eroding due to the impact of higher energy costs. However, many took advantage of lower financing costs for mortgages and have surplus savings, meaning they are not yet as adversely impacted. We are not seeing a material pick up in loan growth or credit delinquencies although lending standards have become tighter.
- In the recent Q3 US earnings season, 69% of companies reported actual earnings per share (EPS) above the mean EPS estimate. This is below the 5 and 10 year average. At a sector level there has been significant divergence in earnings growth with energy being the standout sector (+137% year-over-year) and communications the weakest sector (-23% year-over-year). At an index level earnings growth for Q3 is 2.2%. Earnings revisions are now appearing and we believe earnings are susceptible to fall further in 2023.
- Valuations across equities, sovereign bonds, and credit are now more attractive than at the beginning of the year.
- Within equities we still favour being positioned defensively in respect of style and seek companies that can prove resilient in a downturn.
- Within fixed income opportunities are presenting themselves in shorter duration bonds.
- Volatility in equity and bond markets has reduced, particularly so for bond markets coming down from summer highs.
- Income levels have increased with the average TP Income fund showing an increase of 13.1% in respect of distribution year-on-year to the end of October.
- Chinese equities have been reduced within the Portfolios with rhetoric from the recent 5 year conference guiding to a greater focus on security and less focus compared to history on economic growth.
- Sterling has strengthened against major currencies over the month. Our view being medium term headwinds still exist, but a new set of policies lead us to believe the more extreme policies as per the Truss Government are behind us.
- So far this year, alternative assets have proven beneficial in an environment of negative equity and bond market returns. We continue to favour their role as a diversifier but observe favourable return opportunities in other asset classes.
- At this point the True Potential Portfolio proposition is positioned conservatively relative to long term history. This has been appropriate in an environment of drawdown in traditional risk assets induced by aggressive tightening of monetary policy considering persistently high inflation.
- Based on valuation compared to long term history for many asset classes and the potential moderation in the path of interest rates increases, we are building confidence to deploy some of the higher cash levels within the proposition.
What changes have we made to the True Potential Portfolios?
During the month of November, no changes were made to manager allocations within our True Potential Portfolio proposition. It is important to understand that no change is an active decision. Where no change has been made this is due to our conviction that the portfolio proposition is positioned optimally, as a result of underlying fund changes made in the month by our manager partners. Examples of these are below: –
Equity exposure and style
- Pictet has increased overall equity exposure and added to cyclical sectors such as financials and smaller companies
- Close Brothers has reduced equity after strong recent equity market performance
- UBS has sold out of its Chinese equity position and introduced an energy equity product
- Allianz has reduced their Chinese equity position size to neutral against their strategic asset allocation
Sovereign Bond Opportunities
- UBS has increased exposure to Australian bonds and added a Canadian bond
- Exposure to inflation-linked bonds, bonds issued by governments tied to inflation, has been increased through managers such as Growth-Aligned (through Global Inflation linked and US TIPS), Allianz (through Global Inflation Linked), Pictet and Waverton (all through US TIPS).
Annual Percentage Growth
Net of OCF
Launched 1 October 2015. *Income subject to revision in the current market environment. Yield figure indicated on this page is the forward-looking 12-month yield, net of charges and UK withholding tax. Personal dividend tax charges may still apply and is subject to individual circumstances.< Back to Blog