The Investment Clock

The investment clock is a way of linking the performance of different investments to the global business cycle. We think about it in terms of a clock face, and where you are on that clock is determined by what's happening to global growth and global inflation.

For example, when you have a disinflationary slowdown, so weak growth and falling inflation, government bonds tend to do very well, because interest rates are cut by central banks, inflation expectations are dropping and all of these things boost the bond markets.

When interest rate cuts take effect, and you get an economic recovery, if it's still disinflationary, that's the best of all possible environments for stocks. Because when you've got a disinflationary recovery, you've got loose policy, interest rates are still low, but companies are suddenly making profits and share prices go up.

When growth is strong for too long, you've got an overheat. So what happens there is inflation starts to rise as commodity prices are going up, and there's too much money chasing too few goods. Central banks then start to raise interest rates, to try to reign in that inflation. And in that stage of the business cycle, the overheat commodities tend to be the best investment.

And then finally, of the four different stages of the business cycle, we have stagflation. Now stagflation is a slowdown, but, with inflation still high or rising. In stagflation, you've got an economic slowdown, the prospect of weaker profit growth from companies that Central Banks maybe raising interest rates and that combination tends to be pretty bad for stock markets.

Good afternoon and welcome to this Royal London asset management webinar.

My name is Hugh Thompson part of the wholesale Team at Royal London and delighted to be your host today. I’m joined by Trevor Greetham our head of multi asset and here to give you the multi asset course the update covering the G maps and government portfolio range. Certainly lots to get through, we will provide you with an investment clock updates market updates changes and updates to the strategic and tactical asset allocations, touch on performance and outlook, and then on to Q&A.

And with that, just a reminder to please submit your questions through the Brighttalk portal and we'll do our best to answer all of those today.

If not, we'll certainly get back to you and Trevor, with that over to you.

Thanks Hugh.

Last time we did one of these webinars three months ago, I finished by saying who knows, by now we might have a new government in the UK.

I thought that was a very outside possibility but it's sort of happened.

Market reaction really fairly muted.

If anything, sterling's a bit stronger off the back of it, maybe a bit more political stability than we've seen recently.

What I was saying around that time was that the big uncertainty in elections will come with November and that feels truer than ever with the events in the last couple of weeks. So we'll get back onto some of that later on.

But just to kick off, I often say this, we don't think there is any such thing as passive in multi-asset.

We think you have to be active.

And that's because if someone comes to you with a savings goal, they're thinking about their retirement or saving for school fees or whatever it might be, they don't say I want 60-40.

They may give you a sense of risk appetite and you're trying to maximize return.

If you've decided that the right answer to that question is 60% in equities invested passively, 40% in bonds invested passively, no other asset classes and rebalancing to those weights at all times.

You've actually just made about four or five different active investment decisions.

We'd like to step back a little bit and have a broader approach to strategic asset allocation. We believe in trying to generate the best returns after inflation that we can.

And so when we have our strategic mix, we include real assets and inflation hedges, not just equity but also commercial property and commodities and Royal London is the UK's largest commodity investor.

We have obviously defensive bonds and cash as well and we don't rebalance always to fix weights.

That strategic process is active and typically about once a year we make changes to make sure each portfolio is in the right place for its risk target to improve the risk return trade-off or increase resilience. So we're making some changes this Summer.

I would these in the more incremental versus some of our previous changes.

We are further raising global equities relative to the UK market, just an extra notch.

It's about 5% within the equity mix going from UK to global.

We still believe in the UK's inflation resilience, but we're also reflecting the superior long-term earnings trend we're seeing in global equities, particularly US equities.

And also there are some small trims in some of the funds in property in favour of equities and that's more of a tidy up exercise to ensure that the property weights decrease as you go across the risk spectrum.

We have an active daily tactical asset allocation process as well as benefiting from stock selection in the underlying single asset class building blocks. Funds have been overweighted in equity since 2022.

In fact, it was since, it seems a long time ago now, the Prime Minister before last, Liz Truss, we bought during that panic and we've long ever since. Recently we've lightened up exposure a little bit, two main reasons.

You can see on the screen there the investment clock, the yellow blob current reading is quite near the crosshairs. It had been in the top left-hand corner. We'll see this again in a minute.

That's disinflationary growth. Now it's a bit less clear.

Also we're going into the Summer when markets tend to be a bit more volatile and prone to correction and maybe the elections in America are what could give us a late Summer sell-off.

Also to mention we have a new fund launch, launching this month, GMAP moderate growth.

We're launching that in response to requests from financial advisers, in particular those using Defaqto, where we had an empty risk bucket.

So that will sit between GMAP balanced and GMAP growth.

And it's consistent for governed portfolio users with governed portfolio two or nine.

That further increases the coverage and commonality between the insured and the on-platform solutions.

So, let me move on.

This is the governed range.

There's the nine governed portfolios organized as a kind of a lifestyling journey for adventurous, balanced, or cautious investors as they approach retirement. That's how the numbering works.

These portfolios launched in 2009 and a very good risk adjusted return track record.

In 2016, we launched the governed portfolios four, five, and six and governed portfolio three as the original four GMAP funds.

Since then, we've made some changes to the government portfolios.

They used to have different bond duration and the different portfolios that shared the same risk target, but now if you look on the screen, governed portfolio eight and four have got the same risk target.

They now have the same strategic asset mix as well.

There's another pair on here as well, which is governed portfolio one and five.

In effect, they're also now covered in the on-platform GMAP solution, and then with the moderate growth launch, we're covering those cross-hatched ones, government portfolio two and nine.

So eight out of the nine governed portfolios are now available in the insured proposition, which is the full-service pension proposition, does benefit from Profitshare as members of the mutual, or they're available for people using third-party platforms through the GMAPs.

Thinking about the GMAPs next, there's a risk spectrum from the left-hand side of pure fixed Income Fund and the right-hand side of Pure Equity Fund.

And now, with the new launch, five progressively positioned multi-asset portfolios.

These launched in 2016, apart from the one launching this month.

And if you can just about see it small on your screens, on the right-hand side there, we've used Trustnet to compare GMAP Balanced with the equivalent governed portfolio, GP6.

And you can see since the GMAP launch in the middle of the picture there, they've tracked very closely to each other, not totally identical, but they're really close.

They're the same investment mix, same team managing the tactical asset allocation, and almost identical underlyings as well.

So you can think of them as different delivery mechanisms for the same solution.

And looking at the GMAP performance over one year, two years, three years, four years, and five years cumulative, we've got some pretty good numbers here versus the peer group, typically first or second quartile.

I'm particularly gratified with the performance over the longer time periods here because I mean those of you who've been in the governed range or invested in GMAPs for a long while will know that we were well behind the peer groups in 2020 when the pandemic first hit because stocks and bonds both did really well and anything else you invested in was just a performance drag.

Well over the full period you can see this broader diversification has paid off because it's given you greater inflation resilience and in particular it paid off really well in 2022 when although we never like to see funds lose money across the range, the losses in 2022 were in the sort of 5% to 8% level for most of the GMAPs and governed portfolios.

And in particular, the defensive portfolio only went down 5% to 8%, whereas some of the peers in that category lost 20% from an excessive exposure to long duration bonds.

And that's why we're pleased to say that we were awarded Fund Manager of the Year award by Investment Week for GMAP Defensive since we last had one of these webinars as well because of that greater resilience, particularly in 2022.

I'm just putting on the screen the relative performance versus their composites for the governed portfolios.

Those go back a lot further.

So we've got performance all the way back to 2009 there.

So let's give a bit of an update on the strategic approach that we're taking.

Well, all asset classes do well at different times, and this patchwork quilt shows you the sterling-based returns from different asset classes through different calendar years since 2017.

And I'm going to dwell on 2020 again for a moment there.

If you can see that on your screens, global stocks up 14.3, gilts up 8.3.

Any balanced fund mixing equities and bonds gave you a return of 8% to 14% passively, whereas the multi-asset purple square, you see there, that plus 4.9, which is the GMAP balance fund or governed portfolio six, was up 4.9, well behind the peer group average.

But as you go through, you see the broader diversification benefiting particularly, and what we were saying at the time, we thought would be a more inflationary recovery.

So 2021, 2022, two years in a row, where commodities returned about 30% to a sterling-based investor.

And then in 2022, in particular, your balance funds were blending a minus 7.8 from global stocks with a minus 23.8, which is hard to imagine from gilts.

And that's really where this greater resilience has come through. This is a live process.

It's an active process to adjust the strategic mix. This isn't a kind of fire and forget sort of proposition design process.

It's something which is part of our active management, we'll make changes to the strategic mix on the basis of including new asset classes, adjusting the risk levels of portfolios back to the middle of the range we say they should be in or to reflect valuation changes.

The big change we made in 2023 was adding a lot of bond exposure where we'd previously said that the bond market was offering very poor value.

Zero gilts at one point, 10-year gilts came close to zero.

we're basically giving you no protection against inflation or interest rate rises.

Well, now bond yields have normalized to more normal levels. We did add quite a bit more.

What we're doing this time, though, are those more incremental changes.

We still think inflation resilience is important. We think further inflation shocks are likely.

I see today, UK inflation has hit 2.0.

In other words, the world is back to normal, but it's not back to normal.

We've got through this COVID stimulus and Ukraine war inflation spike, but I think we'll see further inflation shocks coming from net zero, so a chronic commodity underinvestment.

It's an underinvestment in fossil fuels, for good reason, but people are not building new fossil fuel capacity generally, and that means that when you get a surge in demand or a disruption to supply fossil fuels, you get a price spike.

There's also massive demand for things like copper and aluminium to electrify the world and go green, and there isn't enough capacity there either.

So, commodity prices, we think, will be more spiky.

We've got deglobalization going on.

You only have to listen to Trump's vice president nominee talk about China, and you realize that there will not be many new factories from America building in China, and deglobalization increases costs.

You've got structural changes to labour markets.

You've got massive public spending programmes.

You've got high geopolitical risk.

Again, Trump's VP nominee is saying that they would basically walk away from Ukraine and possibly even walk away from Taiwan.

This feels like a pretty uncertain environment.

And to top all of this, you've got very high levels of government debt and that gives governments an incentive to let inflation overshoot.

They'll never admit it at the time.

You only have to look at the UK where we've now had three episodes in the last 15 years of inflation overshooting that the Bank of England has accommodated.

They haven't tried to reverse that unexpected inflation.

The first was the financial crisis, the second was Brexit, the third was COVID Ukraine.

In every case, inflation has overshot and been left where it was.

And as investors, you need to have some inflation hedges.

And balanced funds are particularly poorly prepared for inflation shocks.

We saw in 2022 that both stocks and bonds in America fell by about 20%. That's a scattered plot on the left-hand side.

And the good news is that's the worst outcome for balanced funds going back to 1928.

The bad news is that those numbers weren't adjusted for inflation, and if you adjust returns for inflation, there aren't just four years where stocks and bonds both lose you money.

There are one, two, three, four, five, six, seven, eight, nine, 10, 11, 12, 14 different years.

And those years are during the spike-flation periods, the 1970s, the period around World War II in particular.

If you'd included the period around World War I, that was another spike-flation period.

And those times you needed more than stocks and bonds.

It's not a fluke that stocks and bonds did badly.

It's because we were in stagflation.

So if you look at our mix on the right-hand side, this is now GMAP growth or Governed Portfolio 5.

You'll see it's more broadly diversified than a typical balanced fund, with the risk assets diversified across equities and property, the commodities in there as a hedge, and with a more conscious, generally lower level of bond duration exposure.

The changes we're making at the moment are the latest in a long series of incremental changes we've made.

And these go back all the way to 2009 for the governed range when that first launched.

You can see the 2023 one mentioned here, adding to bond exposure, and then this 2024 one.

The shaded sort of buff-coloured, fawn-coloured rectangles are the equity mix.

And originally in 2009, the split was actually 55% UK equities.

We've reduced that over time.

We thought that degree of home bias was too high.

We understood where it was coming from, and we still like to have additional UK weight because of the inflation resilience it gives you, and I'll explain more of that in a moment.

Most recent change we've made is another incremental change.

So now with 70% global, 20 UK, 10 emerging within the equity mix.

Why have UK above the market cap weight anyway?

Well, if you only had the UK as market capitalization, where you don't have about 4% of your equities the UK. We think having more in the UK is beneficial for three main reasons.

The first is that it gives you more diversification by sector.

The bar chart on the left-hand side shows the sector weights for global equities and UK equities.

Global equities have almost, well, more than a quarter in tech, for example. The UK has hardly anything. I think it's one or two percent in tech.

The good UK tech companies get bought up by American companies and become part of the S&P 500, But we do have a lot of financials and consumer and resource plays.

And that means the second point, we have more inflation resilience.

We saw that in 2022 when the UK was the world's best performing major market.

Typically when inflation is rising, the UK keeps performing.

It's more of a challenge for the growth stocks in the S&P 500 as we saw in 2022.

Then on the right-hand side of your screen, in terms of long-term valuation, the UK is cheap.

The US is heading back towards 2022 levels, which, you know, we're only exceeded in the dot-com era in terms of long-term valuation, whereas the UK market there in the greenish colour is one of the cheapest levels we've seen in 30 years.

So the UK is there for its sector diversification, its inflation resilience, and the value tilt it gives you.

And obviously, if the Mag-7 just keep going through the year after year after year, you might say, well, that wasn't the right decision.

but again diversification is about spreading your risks and it's always quite plausible that political change or interest rates rising again anything could result in a big correction in expensive markets.

One last point about the UK versus global this graph's interesting it looks at the relative performance of global equities to the UK which is that turquoise line you can see the strong out performance over a period but under performance in 2022 when the UK did better. What's underpinning that relative performance is relative earnings there in purple, and you can see they've turned back upwards again.

So part of the reason for making a further step into global was the strengths of the relative earnings picture coming back through in global equities. I kind of think about 20 in the UK feels like a sensible landing zone.

I can see us sort of sometimes adjusting it down from there in the future, sometimes adjusting it up. In terms of that inflation resilience and value tilt, I think that's the right sort of level.

In terms of diversification as well, you get a better risk adjusted return if you blend 20, 70, 10, as you can see from that purple dot, then you would have 100% global equities, which is the red dot.

On property, this is more of a trimming than anything.

Over the last sort of seven or eight years, we have reduced the property exposure in the funds.

That's partly to reflect the attractiveness of equities, but also to reduce the exposure we had to illiquid assets, which are harder to manage at times.

But we think properties are a fantastic asset class to include.

You can see on the right-hand side of your screen in the gold line, the property over the long run going all the way back to the 1980s has had a similar return to global equities.

But again, it gives you some pretty high-level diversification.

It's been underperforming equities for the last couple of years.

it's been more flat.

But you can see in the dot com crash in the middle of the screen there, 2001/2/3, equities were down 50%. UK property just kept going up.

So you get another long-term real return generator from UK investors with rents that typically match inflation and a different sort of return profile at times to equities.

The changes we've made are, again, housekeeping more than anything.

You can see on the left-hand side of your screen for the governed portfolios some of them have gone down by 1.25%.

We've actually been underweight physical property for quite some time because we've seen better returns elsewhere.

And so actually what's happening here is, if you like, the strategic asset mixers are coming down towards where the portfolios were anyway.

But what this does is it allows you to have a decreasing property weight as you go from left to right, 12.5%, 11.25%, 8.75%, etc.

Whereas beforehand, there were some equal and then reducing elements.

This also helped us get back to the middle of the risk range we were trying to get into.

So I'm not going to say much more on this strategic change other than just to flash up the numbers and obviously if you've got this downloaded later you can pause on these screens if you want to go into the detail.

Very few changes you can see the greens are the increases and the reds are the decreases so at the broad asset class level there's that slight decrease in property in some of the portfolios, slight increase in equities and I mentioned the equity split, which we're managing to the 20% UK from 25 it was previously, and then to flash back to the GMAPs.

Same sort of story here, but it's only two of the GMAPs which are impacted by that small change to property.

And the middle one, then, GMAP moderate growth is a kind of new entrant, if you like, to the range, which is shown there with its new asset mix, which we're managing too.

What about tactical asset allocation?

Well, the process that we run is based on things like the investment clock. It's very much a team-based process.

There's loads of research and analysis that goes into the models that inform our daily team meeting.

At the end of that daily team meeting, we've adjusted exposure across about 90 billion pounds of assets, typically using low-cost futures and forwards. It's very systematic.

It's very much grounded in research and analysing what usually works rather than hunches or seat of the pants sort of arguments.

So we try to avoid too much of that kind of thing.

We backtest and simulate the process that we have.

So you can see on the right hand side of your screen, the simulation of the suite and models back to 1992.

I've been managing money since 2004.

So for most of this period, what this is doing, it’s saying if we were using the current suite of models, what would they look like?

You can see different strategies there, cross-asset strategies, currencies, sectors, regions, types of credit.

These are all the asset allocation changes we've made since the GMAPs launched.

We've made similar changes to the governed portfolios and the grips, the retired income portfolios over this period.

20:47

Top left is at the cross-asset level, we've got regional equity strategies shown there, currency strategies and sector strategies.

Although we review positions on a daily basis, and sometimes we're doing daily risk management, you can see some commonality and long holding periods at times there as well.

And I appreciate it's going to be very small on your screens, but just to pull out some of the key information from the top left of the screen there, that's the cross-asset positioning and the purple colours are overweight in equities.

So we were overweight in equities from March 16 all the way up until Covid hit. Then we had to de-risk very quickly.

We didn't go back into equities until the vaccines were announced, which was November.

At that point, we went very overweight equities and high yield bonds and commodities really benefited in that reopening.

So then we then we then derisked again as the bear market started with the invasion of Ukraine, bonds were crashing throughout 2022.

We'd been underweight bonds already there with a grey color.

But one point in 2022, we were underweight government bonds and high yield bonds and credit and equities.

So we were overweight cash, which is really unusual for us.

And then, rather surprisingly, I mentioned at the beginning of the call during the mini budget from Liz Truss, that was the big turning point in financial markets.

If you like, the bear market was kind of over.

Then the UK government did something that forced UK pension funds to dump equities with the second or third largest pension scheme in the world.

So that had an impact on global markets. It gave us a buying opportunity from a sentiment perspective to go overweight equities.

And since then, some bad things haven't happened.

And so, in particular, there was expectation of a recession in the US, and that didn't happen.

The US has stayed very strong, and obviously, technology has gone from strength to strength.

And since then, you'll see we've been overweight, quite aggressively, equities and high yield, and recently, commodities.

On regions, I won't say very much.

I mean, it's been a mixture of being overweight in UK in 2022, and Japan since, or recently, we're overweight in the US.

Currencies and sector strategies are on there as well. This is managed daily through a very low-cost overlay.

Where's the investment clock at the moment? Well, it's a bit becalmed. So on the left-hand side, I've got growth indicators.

The right-hand side, I've got inflation indicators.

And the purple lines are the actual data, if you like, GDP growth on the left-hand side and G7 headline inflation on the right-hand side. What I'm focusing on here is the bars, those sort of turquoise bars.

And for growth, things were looking really terrible at the back end of 2022, and they got less bad, but those bars are not pointing through the roof.

They're not suggesting a big economic boom at the moment, and the most recent reading is slightly less positive.

And on inflation, you've had this big inflation spike and collapse, which are inflation lead indicators properly predicted.

Most people don't even think about inflation lead indicators.

It's not something that's generally been on people's radar. More recently, though, again, it's been quite mixed.

The most recent reading is actually inflation potentially dropping, but you programme this all into the investment clock.

And that yellow dot is the current reading.

And it's kind of near the crosshairs.

So yes, you could say we're now in technically the overheat, strong growth, rising inflation, but it's kind of very low conviction.

It's saying that at the moment, growth is okay.

And it's okay, because the US feels like it's softening a bit, but Europe feels like it's strengthening a bit, coming out of recession here in the UK as well.

Inflation, well, it went up, it went down again, and now we don't know which way it's going.

So there are times when the investment clock doesn't have very strong conviction.

This is one of them.

I think growth will carry on reasonably well.

And what happens to inflation will depend a lot on whether there's an acceleration in growth from here or a slowdown, neither of which we can see at the moment, and what happens in commodity markets.

Looking at commodities, an improvement in growth and inflation, so nominal growth, has helped commodity prices to rise a little bit.

So stronger nominal growth, better growth, bit higher inflation, being good for commodities.

Stronger nominal growth is also good for ending revisions.

So we're seeing an upward revision to company earnings at the moment.

Well, not what you see in a recession, that's supporting stock markets.

We're seeing people revising away rate cuts.

The beginning of the year, people thought there would be a large number of interest rate cuts from central banks, again, because they were expecting recessions that haven't really happened.

They did happen outside the US, but they were very mild.

and in the US they didn't happen and so now you're seeing the markets expecting maybe one or two rate cuts from the main central banks for the balance of the year and that has prevented bond markets from doing well. And then we have stocks.

So stocks we bought during the dip in April of this year on sentiment grounds.

This is our sentiment indicator in purple shown there with the stock market.

We were buyers towards the end of 2022 if you can see that last move down in the sentiment indicator, that was the mini budget we bought again in October of 2023.

That was a late summer correction.

Various things driving that late summer correction, including thin markets, but it was coinciding actually with the Hamas attacks on Israel.

And again, in April of this year, that fell off coincided with the exchange of missiles between Israel and Iran.

So geopolitics can give you these shocks, but our sentiment indicators is generally by the dips when those happen and that can be beneficial so since then we've been long equities but we are in the summer that's a shaded period on this picture. This is the average global stock market profile since 1973 shown through the calendar year and the average return for stocks has been 13.8 percent per annum nominal return. 13.3 of that has been between October and April and where we are now the other other sort of one, two, three, four, five months, you get 0.5.

So we've seen some strength in markets so far this Summer, but I wouldn't be surprised to see some more volatility later in the Summer.

Markets are generally a bit more volatile, a bit more sideways in the Summer because seasonally there's less activity going on in the world.

A lot of the spending for the world's consumer happens between Thanksgiving and Christmas.

And so it wouldn't surprised to see, for example, politics causing a sell-off later.

So we're quite lightly positioned in stocks, partly because the investment clock doesn't have massive conviction right now and partly because we're in the Summer.

We've been overweight in Japan and underweight to emerging markets for some time and this shows you how strongly Japan's been performing.

It's the purple line showing you Japan versus the emerging markets.

So Japan has outperformed the emerging markets here by more than 50% since 2021, and that's partly because of the weak Japanese yen, which is what the turquoise line is showing you.

And even though the Japanese keep intervening, trying to prevent the yen from weakening, it's been weakening more and we’re still overweight Japan.

Last slide, really, before we go to questions.

The stock market's been doing well, but how much headroom is there?

This is more of a long-term thought. This graph goes back to the late 80s.

It shows you the performance in purple of global stocks versus global bonds, government bonds.

So that purple line is, if you like, bull markets and bear markets.

And if you've got stocks and bonds to trade between, it's the big asset allocation call, are we in stocks or are we in bonds?

And going all the way back to the late 1980s, I can count one, two, three, four, five, six, seven, eight turning points so far, number eight there being 2020 COVID.

And those eight turning points in about 30 years have been the eight turning points in the turquoise line, which is just the U.S. unemployment rate.

So what this is saying is that bull markets and equities correspond with a strong labour market.

That's a falling unemployment rate.

That graph's shown upside down on the screen.

So the turquoise line going up is a falling unemployment rate.

Then in recessions, you get bear markets and bonds do well.

Where we are at the moment, it's kind of interesting because unemployment in America isn't falling.

That turquoise line is going down on the screen, which means unemployment is actually rising from 3.5% to 4%.

I mean, no great shakes.

It's not a big rise, but unemployment is actually rising, and yet the stock market's still going higher.

Well, I think if the economy is just okay and unemployment rates stabilise at 4%, earnings trends, particularly in big tech, continue to drive stock markets higher.

But I do think if we see a big surge in growth, wherever it comes from, global growth, and it could come from Trump tax cuts, for example.

You haven't got spare capacity.

You've got very low unemployment rates everywhere still, and the risk is that stronger growth gives you higher inflation and higher interest rates.

One way to think about this graph is the big bull markets and stocks come when you're buying during a recession when unemployment rates are high.

So it's good news we didn't get a recession in America, but there's a bit of a cloud to the silver lining, which is that because we didn't get a recession, we may not have years and years of disinflationary growth ahead of us.

If growth picks up from here, I think inflation will pick up quite quickly.

And that could be a challenge to balance funds and a need, again, for the bigger inflation hedges.

Current positioning, modestly overweight in stocks and high yield.

Underweight bonds, slightly underweight properties still, even with these strategic mix changes.

What else to pull out?

We’re currently overweight US equities, as I mentioned, also Japan.

And we are slightly overweight in financials and recently since this put together we actually moved tech up a little bit as well, but generally positioned quite lightly.

So a lot of the returns coming from the strategic mix with a bit of an overweight in equities versus bonds going on and a tilt towards the US and Japan.

Well Hugh, I think that's time for Q&A.

Just to say before that though, we do have a weekly blog, and in the last six months or so, we unchanged the multi-asset team, so there are 15 of us.

So we have several people producing blogs each week.

So we get blogs from Melanie Baker on economics, but sometimes it will be Hiroki Hashimoto, or Jake Winterton on the Nersen Pillay, or other people putting up blog posts.

So hopefully if you're following that, you're getting a lot of extra information from the team and really hoping there to showcase the fact that this is very much a team effort.

Thanks.

I'd certainly encourage everyone to look at what the team produce and that's put in on hand to continue updates.

A brilliant update, just kind of a reminder of how active we are across the GMAPS and governed portfolios.

And please remember whilst we've still got a few minutes to submit any questions you may have.

But Trevor, starting with lots on the election there. We've had the UK election here, all eyes turned to the US.

Perhaps maybe some thoughts on the macro picture here and how there could be some opportunities in different asset classes and perhaps turn to America as well.

So the UK felt like it was starting to come out of a very shallow recession.

The same is happening in Europe.

Inflation is obviously coming down as well, so that's a sort of reasonably positive macro backdrop for Labour to come in.

I think the challenge for the Labour government is going to be growth.

They're trying to boost growth and what they're doing with housing, for example, could really boost growth, it won't make them popular.

But when you've got a big majority, you can start to get some of the planning regulations lifted a little bit.

I think one of the challenges they'll have is that they aren't talking about improving the trading relationship with Europe very much.

So they're trying to get closer to Europe, but basically things like musicians visas and changes to veterinary checks and even those aren't a given that they'll actually get what they want without anything in return and that I think is a bit of a challenge and you've got a really tight level of departmental spending pencilled in by the previous conservative governments.

They went out of office basically pencilling in future real terms cuts for somebody else to make and they cut taxes which made it even tighter fiscally and it's going to be a challenge.

So there's some benefit, I think, to more stability and more focus on growth, but I think the fiscal side of things will be challenging and it will depend a lot on events, and what happens in the next four or five years, is the global economy giving us a leg up or a leg down.

So some cautious optimism, I think, in terms of what's going to happen in the UK economy under labour, but I think they'll come under more pressure, I think, to try and improve trading with Europe.

The U.S., we had a U.S, sort of political expert in a few months ago, and it's not even clear whether, at that point I was asking the question, we're all talking about Trump versus Biden, and I was saying, will it even be Trump versus Biden?

Because they're both, you know, very old.

And that seemed a bit of an odd question to ask at the time, but you know, now there's a huge debate about whether Biden needs to step back.

Trump survived a near assassination attempt. This is a really unstable environment.

I think there's political risk here heading into that US election.

That I am quite nervous about, in terms of what it means for stock markets.

I think also for bond markets, because remember, the bond markets have got their teeth back. Under the period of QE and money printing, yields were just squashed.

But now you see what happened to gilt yields and the mini budget here.

You see what happened to French government bond yields recently, when the far right looked like they could come to power promising lots of extra spending.

I don't think the Treasury market's immune to Trump and Vance, and they're talking about unfunded tax cuts, their fiscal outlook doesn't look good.

So I'm nervous, actually, that, you know, the markets make it more worried about the Trump-Vance presidency as we get closer to November, but it still feels there could be further uncertainty that maybe public opinion will recoil against some of the things that are being proposed by that duo.

Maybe Biden will get replaced and we'll have someone else that might be more electable.

It's just really uncertain and I think it really matters. Great, thanks Trevor. Got a question here.

I've kind of gone into about small caps.

I'm not going to go fund specific but perhaps, you know, recent strong performance from small caps.

We can look UK specific but kind of how long do you see that to last? And what conditions are we expecting?

Yeah, I think the comment actually probably, I'm guessing it's US tech into US small cap, because the Russell 2000 index has been strolled.

And I think if you're promising lots of tax cuts and spending boosts, funded or unfunded, small companies in America are going to like it.

I think that's what's been happening.

Just in the last few days, there's been some nervousness about what Trump violence might mean for the security of Taiwan.

And that could impact onto technology stocks around the world because Taiwan is so critical to semiconductors.

So I'm guessing that some of what's happening is a reaction to those points.

But I don't think they're long established trends and things could easily move back the other way.

And this is one of the reasons why we think making big investment decisions based on sort of themes, if you like, or changes in politics is not the way we prefer to invest, because sometimes you might make a prediction right about the future, some event happens in the world, and then you find out the market response isn't at all what you expected, because everyone else was already expecting it.

And there's that saying, isn't there, buy the rumour, sell the news, but sometimes actually the thing happened that you expected, and you expect the stock market to go up and it sells off.

So even if you get those sort of real-world calls right, you might get the markets wrong.

We prefer to focus more on the economic data and on the market internals rather than trying to say, okay, let's suddenly massively overweight small caps because they've been doing well for a week.

Brilliant.

Thanks very much.

And I think just in the interest of time, we'll give it a close there, but we will come back to any unanswered questions through that.

And a great reminder, I think a lot of uncertain times up ahead and a great improvement thing of the diversification of portfolios.

Please see all the contacts on the web page. If you've got any questions, do let us know.

Likewise, with the new fund launched later this month, the GMAP Moderate Growth Fund, any questions, please reach out to us. We're more than happy to help.

And I do wonder whether when we next meet in three months' time, whether it will be Trump versus Biden. I mean, at least one of them may have changed. So, yeah, uncertain.

Watch this space. Thank you very much, Trevor, and thanks all for listening.