Market Analysis

Equity Markets
This table above shows the performance of the iShares MSCI ACWI ETF (comprises the largest companies in the World) – it also shows the performance of the largest geographical sector ETF’s being : US, Europe, China and Japan. Based on the past three years trading the S&P 500 ETF has been the most defensive having the lowest drawdown in 2018 and strong performance in the bull markets of 2019 and 2017. It is up almost 12% since end 2017. China did well in 2017 but suffered a large drawdown in 2018 due to the US China trade war. MSCI China has staged a recovery recently as the two sides have called a truce. However, despite that it is still down 8.8% since end 2017. With the outlook for interest rates benign and President Trump appearing keen to do a deal with China before the 2020 elections an investment in iShares MSCI ACWI ETF is recommended – despite the recent rally it is only up by 4.0% since the end of 2017.

Fixed Income and FX markets
US Interest rates have moved down and the yield curve has inverted. This signals that the markets expect further declines in the short term interest rates going forward. Currencies have stabilized with Euro and CNH down marginally or the year whereas the Yen is slightly stronger.

Fixed Income Portfolio Model Portfolio
Below are a selection of Fixed Income Funds that are popular in the market. The table includes back test on the various Bond Funds and ETF’s under consideration, which all have distribution class. We have split these into three categories being: High Yield and EM, Investment Grade , Government and IG floating rate.

The total returns assume the reinvestment of dividends for all funds apart from Value partners, where it is the capital gain added to the distribution yield. Value Partners Greater China High Yield “VP” and the iShares JP Morgan EM Bond ETF give the highest returns of over 7% p.a since end 2013. The ishare has the advantage of lower charges. It is more geographically diversified with holdings in Mexico (5%), Indonesia (5%), Russia (4%) , China (4%) and Philippines (4%). The two funds complement each other well. Amongst the Investment grade offerings I like PIMCO Income for : low duration of 1.1 years, stable performance in 2018 where other bond funds suffered, ability to trade floating rate and mortgage back securities in the US that are hard for us to access. It has performed a lot better than Franklin Templeton Global Total return. Performance is similar to New Capital – however Pimco has advantage of being a much larger Fund with less volatile performance and lower duration. With the rally in the 10 year US Treasury I don’t think there is much value in that that with the US long bond yielding 1.98%. Instead I portion the low risk element of the Bond Fund portfolio to be in the iShares Floating rate Bond ETF , which is currently yielding 2.8%. Currently the market consensus is for interest rates to head down so I believe it’s the correct time to take a contrarian view and invest in floating rate instruments. In summary our suggested model portfolio is below

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