Investment Viewpoint: January 2018

Welcome to our first Investment Viewpoint.

Insights 

Trevor Greetham shares his outlook on the global economy in 2018

Latest tactical change

Trevor Greetham, Head of Multi Asset at Royal London Asset Management, has made a tactical change to the asset allocation of the Governed Portfolios (GPs) and Governed Retirement Income Portfolios...

Market update
Trevor Greetham, Head of Multi Asset, RLAM

The world is experiencing one of the longest economic expansions since records began and there’s no end in sight with muted inflationary pressures keeping interest rates low. Stock markets like this not too hot, not too cold ‘Goldilocks’ backdrop: growth strong enough to boost profits; inflation low enough to keep monetary policy loose. This was the configuration in the very long 1990s expansion that ended in the tech bubble. Valuations are getting expensive again today and sentiment is high but we think the bull market has further to run.

The Investment Clock that guides our asset allocation has moved into Overheat again. America’s late cycle tax cuts could super-charge their economy and trigger an unwelcome rise in core inflation. Stocks might correct on aggressive interest rate rises but it’s too early to worry about recession risks. The downside growth risk the market isn’t talking about comes from China where tighter policy is likely to cause a slowdown. Stocks didn’t like Chinese weakness in 2015/16 but on the plus side, commodity price drops would take the steam out of inflation and elongate the business cycle still further.

We have been overweight equities in our multi asset funds since 2012. Stocks could dip if the US Federal Reserve hikes rates more aggressively than expected in 2018 or if the slowdown in China gathers momentum. Either way, we think this bull market has further to run given global growth remains robust and inflation is muted.

Performance update - as at 31 December 2017

Governed Portfolios (GPs)

Our Governed Portfolios (GPs) are a range of multi-asset investment solutions built for customers saving into a pension.  They are now the only risk targeted and term related portfolios with a proven nine year track record of good performance, governance and risk management.

Over 12 months to end December 2017 the Governed Portfolios have delivered between 3% - 10%. All portfolios have outperformed their benchmarks, apart from Governed Portfolio 7, our most adventurous portfolio, which returned 0.18% below benchmark. This underperformance was caused by weaker performance from the Commodity and Property holdings in the first half of the year. Returns from these holdings have now improved.

All of the Governed Portfolios have outperformed benchmarks over 5 years.


Governed Retirement Income Portfolios (GRIPs)

Our Governed Retirement Income Portfolios (GRIPs) are specifically designed for customers who are looking to take a regular income.  The GRIPs turned five last year and have continued to show their resilience to the ups and downs of the market.

Over 12 months to end December 2017 the GRIPs have delivered between 4% - 11%. All five GRIPs have outperformed their benchmark over one, three and five years and also since launch. A key contributor to performance has been the RLP Sterling Extra Yield Bond holding and more recently the introduction of Commodities in the last quarter of 2017.

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.

You can view our monthly GP and GRIP performance and factsheets by visiting our Fund information page.

All figures are as at 31 December 2017. Source: Lipper as at 31.12.2017, Royal London, as at 31.12.2017. All performance figures, including the figures shown for the growth in the benchmarks, have been calculated net of the 1% annual management charge.

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Last updated: 31 Jan 2018

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