Quarterly Multi-Asset Growth Strategy Update – Q2 2018

Product updates and commentary in response to key market developments.

Performance review

Against the backdrop of a turbulent market environment, the Fund notched a positive performance over the second quarter (0.4% in gross terms). Global trade tensions continued to dominate market sentiment through the period; the US removed exceptions for the European Union, Canada and Mexico from its 25% steel and 10% aluminium tariffs. Meanwhile, central banks in the developed world held on to their respective monetary policies. Trump pulling out of the Iran deal, as well as the up-and-down trajectory of oil prices, led to the widening of both high yield and credit spreads. Spreads in Europe also widened considerably on the back of the ECB tapering its QE, an impasse in forming an Italian government and Spanish leadership issues.

The Fund’s allocation to alternative credit, such as convertible bonds and Putnam’s mortgage prepayment strategy, benefited performance. Our exposure to the Japanese yen also went rewarded, with the yen advancing approximately 2% over the period relative to the GBP.

However, the allocation to both Emerging Market (EM) equities and debt proved detrimental. EM markets suffered from idiosyncratic events at the country level (namely in Argentina, Turkey and Brazil), which developed into an overall sell-off among developing stocks, whilst a strengthening US dollar weighed on EM debt. The threat of US tariffs on China and China retaliation measures also dampened sentiment near the end of June.

Performance (%)

Average annualised returns as of 30/06/18

Russell Investments [Multi-Asset Growth Strategy GBP] Performance (%) 1 month 3 months Year to date 12 months 3 years 5 years Since inception
Return Gross of Mgmt Fee -0.7 0.4 -0.9 2.6 5.0 5.7 6.6
Return Net of Mgmt Fee -0.7 0.2 -1.3 1.7 4.1 4.9 5.7
Benchmark 0.7 1.9 3.8 7.4 6.9 6.4 7.2

Source: Confluence. Data as at 30 June 2018

Discrete rolling 12-month performance (%)

Average annualised returns as of 30/06/18

Returns shown in GBP Q2 2013 - Q2 2014 Q2 2014 - Q2 2015 Q2 2015 - Q2 2016 Q2 2016 - Q2 2017 Q2 2017 - Q2 2018
Return Gross of Mgmt Fee (0.80) 7.3 6.4 2.3 10.3 2.6
Return Net of Mgmt Fee 6.5 5.5 1.5 9.4 1.7
Benchmark 6.5 5.1 5.5 7.8 7.4

Source: Confluence. Data as at 30 June 2018

Portfolio review

Asset allocation chart

Source: Russell Investments. Data as at 30 June 2018

Over the second quarter, we made the following portfolio changes:

  • Early April, we consolidated our investment grade holdings, rotating from European and US credit vehicles into Russell Investments’ Global Credit Fund with a 5.2% allocation.
  • Early May, we traded an options structure in the portfolio, which involved buying approximately 6.5% of European equity call options and selling approximately 2.5% of US equity call options. Given the cheap premiums of European call options relative to the US call options, the premium outlaid was a modest 0.11% at the portfolio level. Based on the ratio implemented, the strategy will make money if European equities participate in more than 40% of any future gain in US equities between now and December 2020. We view this scenario as likely given the very asymmetric starting point for valuations in each respective region.
  • In June, we replaced a broad commodities allocation with a Lyxor Commodities ETF. The new strategy aims to track the performance of the Thomson Reuters/CoreCommodity CRB Non-Agriculture Total Return Index, which comprises of nine metals and energy-related commodities, and excludes all agricultural commodities. The rational for this trade was to gain access to our preferred areas of the commodities market, notably assets widely associated with long-term global economic growth (industrial metals and energy).

The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

Any past performance figures are not necessarily a guide to future performance.

Potential investors in Emerging Markets should be aware that investment in these markets can involve a higher degree of risk. Issued by Russell Investments Limited.

Some investments/bonds may not be liquid and therefore may not be sold instantly. If these investments must be sold on short notice, you might suffer a loss.

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