Investment Viewpoint: June 2018

Welcome to our June Investment Viewpoint.

Insights

Khalid Khan, Investment Proposition Manager, introduces our Sustainable Fund Range that’s now available to Royal London customers.

Market update

Royal London Asset Management

The headline rate of UK consumer price inflation fell to 2.4% (year on year) in May. Nevertheless, the Bank of England (BoE) said its outlook for economic activity was little changed from three months ago, with very little slack in the economy.  The labour market remained robust as total employment rose. The government lost more votes in the House of Lords on amendments to its flagship Brexit legislation; the amendments can be overturned in the elected House of Commons, where the measure is due to return. The pound weakened for a second month.

The US applied tariffs to imports of steel and aluminium from the EU, Canada and Mexico, dropping previous exemptions from the duties and reviving concern about protectionism. The US also withdrew from an Obama-era nuclear accord with Iran. Markets continued to anticipate a rate rise by the Federal Reserve in June as bond yields climbed further, driving the yield on benchmark 10-year government debt above 3% to the highest level since 2011. The US economy maintained its positive momentum, reflected in data including stronger retail sales and a record high number of job openings. The dollar strengthened for a third month in four.

The political crisis in Italy, where March’s parliamentary election was inconclusive, dominated events in the eurozone. Two populist parties agreed to form a government after weeks of talks, but Italy’s president rejected their proposed cabinet. Italian bond yields surged at the prospect of a second election. A revised cabinet was subsequently accepted, freeing the way for the first openly eurosceptic national government in a founding member of the EU. The eurozone economy showed more indications of slowing as purchasing managers’ indices fell further. The euro weakened against the dollar for a third month in four and rose modestly against sterling.

During May the FTSE All-Share Index rose 2.8% as risk assets continued to move higher. The positive move in the market was despite the simmering trade disputes between the US and the rest of the world, political tensions in the eurozone and a fall in emerging markets. In reality, the fact global economic growth continues at an attractive rate, coupled with a relatively subdued inflationary backdrop, means companies remain well positioned to grow profits which ultimately influence share prices. The main market features during the month included the strong performance of the oil and mining sectors reflecting the strength of commodities so far in 2018, whilst the worst performing area was telecoms.

While Brexit talks progressed with March’s agreement on the transition phase after the UK leaves the EU, we believe that business investment will be constrained by uncertainty. Against this background, we expect interest rates to remain at low levels, although we anticipate one 0.25% increase in the BoE’s base rate in 2018.

Performance update - as at 31 May 2018

Governed Portfolios (GPs)

Over 12 months to the end of May 2018 the Governed Portfolios have delivered between 1% and 6%. All portfolios have outperformed their benchmarks over one year, except Governed Portfolio 7, which underperformed its benchmark by 0.38%. Over three years, Governed Portfolios 3, 6 and 9 outperformed benchmark, the remaining portfolios slightly underperformed benchmark on an annualised return basis. All of the portfolios are outperforming benchmark over 5 years on an annualised return basis.


Governed Retirement Income Portfolios (GRIPs)

Over 12 months to end April 2018 the GRIPs have delivered between 1% and 5%.All five GRIPs have outperformed their benchmark over one, three and five years and since launch. GRIP4 and GRIP5 have returned 10% above benchmark since launch. You can view our monthly GP and GRIP performance and factsheets by visiting our Fund information page.

All figures are as at 31 May 2018. Source: Lipper as at 31.05.18, Royal London, as at 31.05.18. All performance figures, including the figures shown for the growth in the benchmarks, have been calculated net of the 1% annual management charge.

Remember, past performance is not a guide to the future. Prices can fall as well as rise meaning you may not get back the full amount of capital originally invested. Investment returns may fluctuate and are not guaranteed.

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Last updated: 29 Jun 2018

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL.