Further to last week’s focus on the portfolios and their respective performances over the year to date, we have decided to continue to focus on this theme moving forward, so that we convey the most important information across to you. As a result, we will continue to provide a deep dive on the macroeconomy at the end of each month (beginning at the end of April), alongside a reflection of the past three months on the conclusion of each quarter (beginning at the end of June), which should help to prevent the market commentary from being bogged down week to week. There will be no quarterly commentary at the end of Q1 as we have continued to provide a deep dive on the macroeconomy every week so far this year.
Indices and Sectors
Eagle-eyed clients will notice that, when reviewing the data set below, we have made some changes to the Global Indices & Sector Performance table. In light of the questions that were answered on the equity to non-equity portfolio allocation last week, we have modified the table such that you can see some of the sectors that our non-equity holdings within the portfolios typically belong to. We have done this so clients can observe what is happening on this side of the portfolio in contrast to what is happening with the indices. As we have previously stated, focusing on either side of the equation too heavily is not beneficial, as we do not have 100% equity portfolios invested in index trackers, nor do we have 100% of the non-equity exposure invested in one sector. That being said, the data does provide food for thought and greater context to portfolio performance.
The data shows that all non-equity sectors, apart from the high-yield sector, have posted negative returns so far this year, creating a drag on the portfolios. The worst performing asset is government debt which is down 7% YTD, and we only see that getting worse as the year progresses. The good news is that we removed our exposure to government debt in October and November last year directionally, and we only have exposure in our portfolios to high-yield and strategic bonds, noting that some of the underlying fund managers may have a small amount of government debt exposure within their funds that has been retained. Although the YTD performance of the non-equity sectors is generally negative, our exposure within these areas is mixed between high-yield and strategic bonds. Despite the first quarter performance for these assets being slightly up and slightly down, we do not consider this an issue moving forward. Both asset sectors will have been impacted by what happened to gilts on a pricing level, but as we continue through the year, we still expect them to deliver around 4% as a total return, which is our base line expectation of these assets over a rolling 12-month period.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges and trading spreads. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment.
Performance of Portfolios
Over the week, we have seen positive returns across all of our portfolios due to markets rising and the portfolios benefitting from a high level of diversification. In fact, all portfolios over the referenced time periods are in positive territory except OBI 3 & 4 over the past 3 months, due to their exposure to non-equity assets being higher, and the impact of the non-equity data above being far greater in the year so far. In contrast to last week’s performance table, the 1-month performance column has flipped from an all-negative to an all-positive performance for the OBI portfolios, which has been spurred on by a solid week for equity markets as a whole. As expected, this has benefitted the riskier portfolios the most, so those in OBI 8 will be pleased with the higher risk-reward payoff. Since the start of 2020 all portfolios have nearly doubled the performance of the respective benchmarks and, despite underperforming the benchmark over the month, we are still in line with them YTD, which is positive. It is our expectation that, as markets start to calm down and earnings come in for Q1 2021 from next week onwards, the outperformance in the short-term and YTD should resume.
What’s Our 3-Month Outlook?
The past 3 months have been characterised by heightened volatility as we have entered a transition phase for global financial markets. An improving outlook has been heavily baked into asset prices, and investors are currently waiting to see if this improving outlook materialises, or if worries about a mutated virus strain worsen. Without a crystal ball, we cannot predict the week-by-week movements of the portfolios, but if our base case scenario is roughly correct, with a wide vaccination rollout and the expected release of lockdown restrictions being met, then our specifically-chosen equity exposure could be an outsized beneficiary by the time we end the second quarter. By then, we will likely know if global economies will be able to fully reopen in H2 2021. If our view changes on this positive outlook, we will monitor and adjust the portfolios as we see fit, aiming to protect your returns as well as achieve capital growth.
Key Events We Are Watching This Week:
- Thursday: US Jobless claims
- Wednesday: UK PMI data, US balance of payments
This Day in History
On this day in 2004, the FCA formally gave Jason & Maggie permission to start trading OCM Wealth Management, meaning that from a trading perspective, OCM as you know it today was born. 17 Years later, OCM is now one of the leading Wealth Management firms in the UK, with the highest standards of customer service and one of the highest ratios of assets under management to clients in the industry. Although the journey is still very much “in progress” for them, they are very proud of what they have created together and the fact that the group now employs over 40 staff, with a training academy which is nurturing at least 9 future Chartered Financial Planners which will continue to grow the business organically. Happy Birthday OCM!
Have a great week,
Jason, Gina & Ben