Spring Partner Forum Return of the bears? 1. Since we last met: - - PowerPoint PPT Presentation
Spring Partner Forum Return of the bears? 1. Since we last met: Exuberance turned fearfulness - again 2. Portfolio activity 3. Portfolio returns 4. Outlook 5. Business news Lothar Mentel CEO & Chief Investment Officer April 2018 For
CEO & Chief Investment Officer For professional use only April 2018
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Source: Hedgeye, 5 April 2018
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2016 ’00-03 Dot-com Bubble+Iraq Crash ‘98 Russia Crisis ’08-09 GFC & Eurozone Crisis + recovery
Source: Morningstar, 10 April 2018 Note: Past Performance is no guarantee for future returns. Index returns do not take into account the cost of advice and the cost of investing
2017
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Source: Bloomberg, 12 April 2018
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Strong growth momentum + Trump’s tax reform = January’s equity ‘melt-up’
US inflation concern triggered sell-off – exacerbated by volatility short sellers
Volatility return triggers debate of valuation levels under ‘old normal’
Macro economic data shows growth ‘coming off the boil’
Second wave sell-off on slowing fears, rather than overheating and inflation!
Since then: Big Tech rethink; Trade wars; Middle East real war?
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End Aug 2016: Rebalance back to neutral Feb 2016: Rebalance back to neutral Apr 2016: Rebalance back to neutral
Source: Morningstar, 24 Oct 2017 Note: Past Performance is no guarantee for future returns. Index returns do not take into account the cost of advice and the cost of investing
Mid Oct: UK underweight Asia overweight Bond duration shortened June 2016: Sell down of UK
for UK gilts And UK small cap for large cap Mid Feb 2017: US underweight EZ overweight Bond duration lengthened back to benchmark June 2017 5% equity underweight Bond duration underweight Mid Dec: Rebalance & Swap of trackers for active in US and UK Mid Sep: US equity neutral to close USD short Mar 6th: EM equity reduction
3 3 3 3 3 3 26 17 16 14 11 4 51 40 26 14 3 2 20 40 55 69 83 91 10 20 30 40 50 60 70 80 90 100 Equities Bonds Cash Alternatives
10 20 30 Alternatives Cash Equities Bonds
Relative
8 7 6 5 4 3
‒ Underweight Fixed Income ‒ Underweight Equities ‒ Overweight Cash ‒ Overweight Alternatives
‒ Underweight Global Emerging Markets ‒ Underweight Asia Pacific ex Japan ‒ Underweight North America ‒ Overweight Europe ‒ Underweight UK ‒ Overweight Japan
5 10 15 20 EQ UK EQ Europe EQ NAm EQ Japan EQ APxJ EQ GEM
Relative
8 7 6 5 4 3
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Source: Morningstar, 14 April 2018 Note: Past Performance is no guarantee for future returns. Shown returns do not take into account the cost of advice and the cost of investing
Source: Morningstar, 12 April 2018; Note: Past Performance is no guarantee for future returns. Index returns do not take into account the cost of advice and the cost of investing
Falling less then others usually only appreciated once valuation turn positive
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Source: Morningstar, 10 April 2018 Note: Past Performance is no guarantee for future returns. Shown returns do not take into account the cost of advice and the cost of investing
Note: To 31 Mar 2018; Tatton returns after DFM charge and underlying fund costs; Global Equity portfolio strategies only launched Nov 2013
Tatton IA Sector Relative to IA Tatton IA Sector Relative to IA 3 yr Annualised Volatility
Defensive
0.5% 32.1% 25.7% 6.4% 4.3 Cautious
0.7% 46.7% 36.0% 10.7% 5.2 Balanced
0.6% 57.6% 43.9% 13.7% 6.1 Active
0.7% 68.6% 52.0% 16.6% 7.5 Aggressive
0.1% 75.7% 54.1% 21.6% 8.6 Global Equity
0.6% 45.5% 34.4% 11.1% 9.8
Since Launch 1 Jan 2013 Tatton Managed Year-to-Date
Tatton IA Sector Relative to IA Tatton IA Sector Relative to IA 3 yr Annualised Volatility
Defensive
0.8% 33.5% 25.7% 7.8% 4.1 Cautious
0.9% 43.3% 36.0% 7.3% 5.4 Balanced
0.7% 53.3% 43.9% 9.4% 6.5 Active
0.5% 65.9% 52.0% 13.9% 7.8 Aggressive
0.1% 76.7% 54.1% 22.6% 8.8 Global Equity
0.3% 45.0% 34.4% 10.6% 9.8
Tatton Tracker Year-to-Date Since Launch 1 Jan 2013
Note: To 31 Mar 2018; Tatton returns after DFM charge and underlying fund costs; Global Equity portfolio strategies only launched Nov 2013
Note: To 31 Mar 2018; Tatton returns after DFM charge and underlying fund costs; Global Equity portfolio strategies only launched Nov 2013
Tatton IA Sector Relative to IA Tatton IA Sector Relative to IA 3 yr Annualised Volatility
Defensive
0.6% 33.8% 25.7% 8.1% 4.2 Cautious
0.8% 46.4% 36.0% 10.4% 5.2 Balanced
0.6% 56.6% 43.9% 12.7% 6.2 Active
0.6% 68.5% 52.0% 16.5% 7.5 Aggressive
0.1% 75.5% 54.1% 21.4% 8.6 Global Equity
0.5% 45.3% 34.4% 10.9% 9.7
Since Launch 1 Jan 2013 Year-to-Date Tatton Blended / Core
Note: To 31 Mar 2018; Tatton returns after DFM charge and underlying fund costs; Global Equity portfolio strategies only launched Nov 2013
Tatton IA Sector Relative to IA Tatton IA Sector Relative to IA 3 yr Annualised Volatility
Defensive
0.3% 23.6% 13.8% 9.8% 4.8 Cautious
1.3% 23.6% 18.1% 5.5% 4.8 Balanced
1.3% 26.7% 21.8% 4.9% 5.7 Active
1.2% 31.9% 25.4% 6.5% 6.7 Aggressive
0.6% 35.4% 27.1% 8.3% 7.5
Year-to-Date Since Launch December 2014 Tatton Income
Note: To 31 Mar 2018; Tatton returns after DFM charge and underlying fund costs; Global Equity portfolio strategies only launched Nov 2013
Tatton IA Sector Relative to IA Tatton IA Sector Relative to IA 3 yr Annualised Volatility
Defensive Cautious Balanced
0.5% 31.5% 25.9% 5.6% 6.1 Active Aggressive
Since Launch
Performance available on request - This cannot be publically distributed until it meets its one year track record
Year-to-Date Tatton Ethical
Performance available on request - This cannot be publically distributed until it meets its one year track record
Source: Tatton IM, Morningstar, 31 Mar 2018
Asset Class TATTON Funds Benchmark Sub Asset Class Fund Benchmark Q1/18 BM Q1/18 Q1/18 UK All Companies Artemis Income I Acc FTSE AllSh TR GBP
Dimensional UK Value Acc
IP UK Enhanced Index No Trail
iShares Mid Cap UK Equity Idx (UK) D Acc
iShares UK Equity Index (UK) D Acc
Lazard UK Omega C Acc
Man GLG UK Income Professional Inc D
Old Mutual UK Alpha U2 GBP Acc
Schroder Income Maximiser Z Inc
Schroder Recovery Z Acc
UK All Companies (Ethical) Janus Henderson UK Responsible Inc I Inc FTSE AllSh TR GBP
Liontrust Sust Fut UK Gr 2 Net Acc
Europe ex UK Baring Europe Select I GBP Inc MSCI Europe Ex UK NR USD
Janus Henderson European Sel Opps I Acc
JPM Europe Dynamic (ex-UK) C Net Acc
Liontrust European Growth I Inc
Vanguard FTSE Dev Eurp ex UK Eq Idx Inc
North America Franklin US Opportunities W Acc MSCI North America NR USD
HSBC American Index C Acc
Old Mutual North American Eq U2 GBP Acc
Vanguard US Equity Index Acc
Wells Fargo (Lux) WF US SmCpVal I £ Acc
Japan JPM Japan C Net Acc MSCI Japan NR USD 2.80
Schroder Tokyo Z Acc
Vanguard Japan Stock Index GBP Acc
Asia Pacific ex Japan Fidelity Asia W Acc MSCI Pacific Ex Japan NR USD
Vanguard Pac ex-Jpn Stk Idx GBP Acc
Global Emerging Markets Dimensional Emerging Mkts Val D GBP MSCI EM NR USD
Fidelity Instl Emerg Mkts W Acc
RWC Global Emerging Markets B GBP Acc Vanguard Emerg Mkts Stk Idx GBP Acc
Global Emerging Markets (Ethical) Vontobel mtx Sust EmMkts Ldrs N GBP MSCI EM NR USD
Global Artemis Global Income I Inc MSCI ACWI NR USD
Dimensional Global Core Equity C
Schroder ISF Glbl Div Mxmsr C Dis GBP
Vanguard FTSE Dev Wld ex UK Eq Idx Inc
Vanguard Glbl Small-Cap Idx GBP Inc
Global (Ethical) Hermes Global Equity ESG F GBP Acc MSCI ACWI NR USD
Janus Henderson Global Sust Eq I Acc
Kames Global Sustainable Eq GBP C Acc
Schroder ISF QEP Global ESG C Acc GBP
Vanguard SRI Global Stock GBP Inc
0.28 0.17 0.26
1.67
4.95
0.85
0.45
5.57
2.52 0.22 3.65
4.82 1.51 2.98 1.55 0.53 0.61 0.92 2.48 0.62 5.70 3.35 0.51 2.59 1.12 Relative Performance
Decent results for equity fund selection
Tough Q1 – Positioning to avoid losses from rising yields - not the funds’ fault
Source: Tatton IM, Morningstar 31 Mar 2018
Asset Class TATTON Funds Benchmark Sub Asset Class Fund Benchmark Q1/18 BM Q1/18 Cash AQR Systematic Total Return UCITS C3 ICE LIBOR 1 Month GBP
0.12 Cheyne Global Credit GCDH IJ3 £
0.12 Dimensional Glbl UltraShrt FxdInc £ Acc
0.12 JPM Income Opp C perf (dist) GBPH
0.12 L&G Cash Trust I Acc 0.09 0.12 Royal London Enhanced Cash Plus Y Acc
0.12 UK Gilts Vanguard UK Govt Bd Idx GBP Acc BBgBarc Gbl Agg Govt TR Hdg GBP 0.37 0.21 Vanguard UK Infl-LnkdGltIdx A Grs Acc
0.21 £ Corporate Bonds Cheyne Global Credit GCD IJ3 £ BBgBarc Gbl Agg Corp TR Hdg GBP
Vanguard UK Inv Grd Bd Idx GBP Acc
Kames Investment Grade Bond GBP B Inc Markit iBoxx GBP Corp TR
M&G Strategic Corporate Bond GBP I Inc
£ Corporate Bonds (Ethical) Kames Ethical Corporate Bond GBP B Inc
Rathbone Ethical Bond I Inc
Royal London Ethical Bond M
Global Bonds iShares Overseas Corp Bd Idx (UK) D Acc BBgBarc Gbl Agg Corp TR Hdg GBP
L&G Global Inflation Lnkd Bd Idx I Acc
0.21 Legg Mason IF BW Glbl Inc Optr X Inc
Schroder ISF Global Bond C Acc GBP
Templeton Global Total Ret Bd W Acc
Vanguard Glbl Sh-Tm Bd Idx GBPH Acc
Kames High Yield Bond GBP B Inc BBgBarc Global High Yield TR Hdg GBP
0.27
1.09
1.57 0.08
0.52
Relative Performance Q1/18
0.17
0.18 1.07
Index benchmarks much harder comparator than Morningstar selection
Source: Morningstar, 31 March 2018; Note: Past Performance is no guarantee for future returns. Returns provided are Net for Fund Fees and Gross of Tatton IM Fees (Management and Trading)
Sources: Nucleus, Factset, Tatton, Bloomberg Inception date – 20/10/2016 Performance figures gross of fees
5 10 15 20 25 30 35 40 45 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18
Tatton AIM (Total Return)
Tatton AIM FTSE AIM Index FTSE All Share FTSE Small Cap FTSE 250
Index Inception Difference YTD Difference March Difference Tatton AIM 33.9%
FTSE AIM 25.0% 8.9% -3.1% 0.8%
1.4% FTSE All Share 7.6% 26.3% -6.9% 4.6%
1.1% FTSE Small Cap 16.2% 17.6% -4.8% 2.6%
1.0% FTSE 250 12.3% 21.5% -5.7% 3.5%
0.1%
Sources: Nucleus, Factset, Tatton, Bloomberg Inception date – 20/10/2016
Name % Held Return Price Contribution Mkt Cap (£m) PE FY1 Ideagen PLC 3.5% 73.5% 1.15 2.2% 230 27.4 Idox plc 0.9% -50.2% 0.29
121 10.1 IQE plc 2.1% 237.9% 1.28 4.9% 877 32.1 Johnson Service Group PLC 2.3% 28.3% 1.35 0.7% 496 15.2 Landore Resources Limited 1.1% 0.0% 0.01 0.0% 11
2.1% -23.8% 0.48
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3.5% 28.0% 2.34 0.8% 89 10.8 Plant Health Care PLC 1.0% 3.9% 0.22 0.0% 32
1.9%
1.09 0.1% 42 11.0 Premier Technical Services Group PLC 2.8% 36.2% 1.66 0.9% 152 15.1 Ramsdens Holdings PLC 3.8% 90.1% 1.79 2.4% 55 11.1 Renew Holdings plc 1.7%
3.80
238 11.1 Restore plc 2.8% 48.0% 5.43 1.1% 613 21.1 RWS Holdings plc 2.9% 58.3% 4.42 1.4% 1,014 24.7 Scapa Group Plc 2.6% 62.4% 4.91 1.6% 753 28.5 Seeing Machines Limited 2.3%
0.05
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0.5%
7.34 0.0% 825 38.5 Strix Group PLC 2.3%
1.30
247 10.5 YouGov plc 3.1% 65.9% 3.81 1.4% 402 32.4
Name % Held Return Price Contribution Mkt Cap (£m) PE FY1 1 PM Plc 2.1% 2.6% 0.47 0.1% 40 6.6 ABCAM PLC 3.1% 60.4% 12.39 1.3% 2,529 39.5 Appscatter Group Plc 2.1% 30.4% 0.88 0.5% 56
1.3%
0.12 0.0% 84
2.3% 18.9% 0.80 0.6% 1,150 17.7 Burford Capital Limited 3.6% 185.3% 13.40 3.7% 2,790 18.3 CareTech Holdings PLC 2.2%
3.83 0.0% 290 10.7 Cello Group plc 2.1% 14.3% 1.13 0.5% 117 13.3 City Pub Group PLC 1.9%
1.67
95 48.6 Clinigen Group Plc 2.3% 22.1% 8.92 0.7% 1,091 19.9 CVS Group plc 2.3%
9.77
626 20.2 Diversified Gas & Oil PLC 1.1% 2.0% 0.85 0.0% 123 39.8 ECO Animal Health Group plc 2.0% 6.0% 5.31 0.2% 349 26.5 Ergomed PLC 2.6% 10.6% 1.83 0.3% 74 33.8 Finsbury Food Group plc 1.8%
1.18
151 12.1 Focusrite PLC 3.6% 178.8% 4.60 3.3% 255 29.1 Fulcrum Utility Services Limited 2.3% 25.4% 0.61 0.7% 107 14.9 Gattaca plc 1.2% -29.5% 1.98
63 6.6 GB Group PLC 3.1% 64.4% 4.03 1.6% 615 33.8 Gooch & Housego PLC 2.4% 30.3% 12.60 0.9% 309 22.4
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Source: Hedgeye, 20 Feb 2018
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…after an uncomfortable January rally
Source: ASR Ltd, Thomson Reuters Datastream, 6 Apr 2018
Not at silly levels, but US has much future growth priced in
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Economic growth momentum decelerating – but high earnings expectations
Source: ASR, Apr 2018
Source: Goldman Sachs Economics Research, 2 Apr 2018
Having just regained previous levels, now slowing again
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Economic growth momentum decelerating – but high earnings expectations
‘Old Normal’ returns – with ~2% inflation instead of deflation fear
Source: ASR, Apr 2018
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Economic growth momentum decelerating – but high earnings expectations
‘Old Normal’ returns – with ~2% inflation instead of deflation fear
Even mild inflation necessitates higher interest rates and bond yields
Source: US central bank, Apr 2018
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Economic growth increasingly resilient - but highly valued markets vulnerable
‘Old Normal’ returns - with inflation expectations instead of deflation fear
Even mild inflation necessitates higher interest rates and bond yields
This reduces present value of future cash flows = lower valuations for same flows
Source: Tatton IM illustration, Feb 2018
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 100 100 100 100 100 100 100 100 100 100 0.50% 972.9 99.5 99.0 98.5 98.0 97.5 97.0 96.6 96.1 95.6 95.1 2.50% 849.6 97.0 94.1 91.3 88.6 85.9 83.4 80.9 78.5 76.1 73.8 Difference 123.34
Yield Present Value
However, increasing future cash flows can counterbalance this
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Economic growth momentum decelerating – but high earnings expectations
‘Old Normal’ returns – with ~2% inflation instead of deflation fear
Even mild inflation necessitates higher interest rates and bond yields
This reduces present value of future cash flows = lower valuations for same flows
Moves focus to equity valuation levels and bond market implosion fears
Source: ASR, Apr 2018
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Economic growth increasingly resilient - but highly valued markets vulnerable
‘Old Normal’ returns - with inflation expectations instead of deflation fear
Even mild inflation necessitates higher interest rates and bond yields
This reduces present value of future cash flows = lower valuations for same flows
Moves focus to equity valuation levels and bond market implosion fears
Returning business investments = productivity gains = countering price pressures
Source: ASR, Apr 2018
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Economic growth increasingly resilient - but highly valued markets vulnerable
‘Old Normal’ returns - with inflation expectations instead of deflation fear
Even mild inflation necessitates higher interest rates and bond yields
This reduces present value of future cash flows = lower valuations for same flows
Moves focus to equity valuation levels and bond market implosion fears
Returning business investments = productivity gains = countering price pressures
Paradigm shift requires re-calibration / valuation reassessment = volatility
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Brexit going badly
Source: Sunday Times, 4 March 2018
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…not working together
KAL, 2 March 2018 edition
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…not sure I agree that the clowns are just on the UK side
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Brexit going badly
Trump trade war
Hedgeye, 5 March 2018
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As Hedgeeye.com put it: “Is Trump Screwing Up this Stock Market Rally?”
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Brexit going badly
Trump trade war
Growth rolls over, US-$ rebounds from weakness and slows global economy
Syria (Putin), Xi, Kim Yong-Un (Little Rocket Man) But then that’s nothing new and lately consequences have been exaggerated
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Resilient but slowing growth, QT, trade frictions, Capex = downside and upside risks!
Steady economic momentum supports further earnings growth
Rising yields put pressure on valuations and limit upside to earnings growth
UK improves only on back of global economic momentum – Brexit risk remains
Growth flattens, stabilising inflation dynamics, but destabilising markets
Oversold US-$ rebounds and hurts EM prospects
Source: Morningstar, 10 Apr 2018
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Resilient but slowing growth, QT, trade frictions, Capex = downside and upside risks!
Steady economic momentum supports further earnings growth
Rising yields put pressure on valuations and limit upside to earnings growth
UK improves only on back of global economic momentum – Brexit risk remains
Growth flattens, stabilising inflation dynamics, but destabilising markets
Oversold US-$ rebounds and hurts EM prospects
‘Watch and wait’ for earnings growth direction – double digit growth projected
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the ‘Greenspan put’ is probably over – lower returns ahead Cycles do not die of old age – policy mistakes, overheating or shocks will!
Fixed income will be confined to reducing volatility, but won’t add much return, if any
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Successful launch of Tatton Blended DFM portfolio funds – already at £5 million Available on all major platforms – roll out to legacy wrappers on request and depending on wrapper
Where DFM portfolios cannot be run, low charge fund wrappers help
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We stayed in cash initially…..hopefully nobody minded?
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Tracking nicely since then
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DFM charging level for MM funds!
Risk/OCF Tatton Core Brewin’s Jupiter SEI Premier Liberation Cautious 0.59 0.95 1.48 1.05 1.31 Balanced 0.64 0.94 1.63 1.10 1.37 Active 0.71 1.01 1.73 1.15 1.44
Nucleus Standard Life Aviva Aegon
Amber/SEI Transact Novia Alliance Trust (ATS) Platform One FidelityFundsNetwork James Hay Hubwise (under negotiation)
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considerable interest
We are only just getting started!
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Tatton Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 733471. Tatton Investment Management Limited is registered in England and Wales No.
Cheshire, SK9 3ND.