Market update April 2019 Hedgeye - Central bank fairy godmother - Jan 2019
Today 1. 2018 – What happened 2. Portfolio activity and returns overview 3. 2019 – current state 4. Outlook www.tattoninvestments.com | Tel: 02071902959 | 17 St Swithin's Lane, London EC4N 8AL | @TattonIM 2
2018 – What happened www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 3
The long-term perspective 2018 2018 stock markets: A last quarter to forget 2017 ’08 -09 GFC & Eurozone Crisis ’00 -03 + recovery Dot-com Bubble+Iraq ‘98 Crash Russia Crisis ‘87 20% Crash Source: Morningstar, 31 March 2019. 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 www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 4
5 decent years – followed by a poor one Source: Morningstar / Tatton IM, 31 March 2019 Note: Past Performance is no guarantee for future returns. Model portfolio returns, for illustrative purposes only Returns shown do not take into account the cost of advice and the cost of platform administration 5
2018 - a year to forget; Q1 2019: Best since 1987 To 31 March 2019 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 6
Let’s start: Our outlook slide from January 2018 www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 7
Investment Update – 5 good years 1. Big picture 2. Portfolio activity 3. Portfolio returns 2017 4. Outlook 5. Business News Lothar Mentel CEO & Chief Investment Officer Source: Morningstar / Tatton IM 31 January 2018 For professional use only 8
Trump’s timely tax reform surprises Source: Financial Times, 30 Jan 2018 Luck or skill? The debate will carry on 9
‘Nowcast’ GDP indicators - raised back to ‘old normal’ hopes Normalising rather than falling off a cliff? Source: Goldman Sachs Economics Research, 21 Nov 2017
Stock market levels not as high as some thought 30 June 2018; BES, MSCI, Standard & Poor’s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Valuations refer to 12 - month forward price-to-earnings ratios for Europe ex-UK, US, Japan, UK and emerging markets. Valuation and earnings charts use MSCI 11 indices for all regions/countries, except for the US, which is the S&P 500.
Why this cycle was feeling odd www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 12
North Korea – war of words only (so far) Source: Financial Times, 11 Aug 2017 Turning into a frozen conflict? 13
Q1 Update – Return of the bears? 1. 2018 correction; Exuberance turned fearfulness - again 2. Portfolio activity 3. Portfolio returns 4. Outlook 5. Business news Lothar Mentel CEO & Chief Investment Officer 12 April 2018 For professional use only Source: Hedgeye, 5 April 2018 14
US inflation made predictable re-appearance …and worryingly quickly drove up bond yields 15
..and so market volatility returned Source: Hedgeye, 20 Feb 2018 Credit default fears returned equity volatility which triggered volatility shorting product collapses
Stock markets corrected and left exuberance behind Return to previous trend channel? …after an uncomfortable January rally Source: Bloomberg, 17 August 2018 17
Q2 Update – Back to normal or end of cycle? 1. Q2 recovery 2. Portfolio activity 3. Portfolio returns 4. Outlook 5. Business news Lothar Mentel Chief Investment Officer & CEO 20 August 2018 For professional use only Bull and bear both had their moments in the sun during H1 2018; Source: Hedgeye, 27 April 2018 18
US stocks hit new highs in late summer Fundamentally justified? Source: Bloomberg, 1 October 2018 19
Certainly supported in terms of earnings “Lift - off” “Escape velocity” “Second tech boom” ? -> Business confidence finally returns Source: IBES, S&P, Thompson Reuters Datastream, JPM Asset Management, NTM is next 12 months 20
Global ex-US did not follow Fundamentally justified? Source: Bloomberg, 1 October 2018 21
Synchronised expansion had ended US accelerating, China slowing USA Global China - 22 -
and so had central banks’ easy money Initially it had seemingly no impact at all, but 23
and when as a result US yields crossed the ‘magic’ 3.2% barrier …renewed worries about corporate credit default gripped stock markets Investor liquidity disappeared to China, cash and government bonds 24
Q3 Update – Yield curve vs. politics Dodging the yield ‘curve ball’ with Brexit and Trump? Lothar Mentel CIO Tatton Investment Management 6 November 2018 Source: Hedgeye – online, 2018 For professional adviser use only The September US ISM business sentiment index hitting an unexpected high pushed the yield of US 10 year Treasury bonds to 3.2% and thus paradoxically brought the 2018 US stock market rally to an abrupt end
Ensuing sell-off suggesting imminent global recession From exuberance to temporary bear market in under 12 months S&P500 trend channel since 2016; Source: Bloomberg, 30 Jan 2019
Summary – 2018 returns – Taper Tantrum 2.0 Liquidity squeeze (QT) – End of cycle fears – Slowing growth 1. Liquidity squeeze and market overshooting, not fundamentals drove volatility 2. EM and small cap suffered most – robbing stock pickers of much alpha source 3. Synchronisation – de-synchronisation - synchronisation www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 27
Portfolio activity www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 28
2018/2019 portfolio adjustments June: Late October Rebalance Asia underweight, -Japan, -UK, + US Mar 6th: Strategic Bonds and 3% Cash to EM equity February rebalance Starting position Long/Short fund Alternatives July/August: underweight +EM, back to equity EU and Jap Introduced US underweight neutral overweight UK back to neutral UK underweight Asia underweight Key capital market returns for 2018; Source: Morningstar, 28 Feb 2019 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 www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 29
Current positioning: Under/over weights by risk profile • Underweight Duration • Equities – Fully invested Further volatility but with upside • Overweight Cash = duration reduction Note: Cash = 0 duration bonds • Alternatives selective underweight due to lack of funds suitably un-correlated to credit, equity, yield risk www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 30
Regional equity under / over-weights by risk profile • Emerging Markets (EM)/ Asia Upside on global trade rebound and subsiding US$ strength • Overweight Japan (reduced) Upside from China rebound • Underweight US (reduced) Still too expensive • Overweight Europe: Upside from China rebound • UK – neutral: Excessively discounted for Brexit www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 31
Returns update – Portfolio activity The positives and negatives ++ 5% equity underweight from February 2018 (closed Feb 2019) ++ Emerging market underweight from early March 2018 (closed Feb 2019) ++ Full US allocation until August 2018 + UK underweight until August 2018 0 - US underweight timing (beginning of August and 1-3/2019) - - Europe and Japan overweight - - Active fund managers underperform trackers in Q4/2018 - 32 -
Portfolio returns www.tattoninvestments.com | Tel: 02071902959 | 125 Old Broad Street, London, EC2N 1AR | @TattonIM 33
Investment returns – Tatton Managed vs. IA peers (March 2019) Tatton Managed (Overlay) YTD 2018 Since Launch (Annualised %) 3 yr IA Relative IA Relative IA Relative to Tatton Tatton Tatton Annualised Sector to IA Sector to IA Sector IA Volatility Defensive 3.5% 3.7% -0.2% -2.7% -3.4% 0.7% 4.7% 4.0% 0.7% 3.9 Cautious 4.6% 5.0% -0.4% -4.3% -5.1% 0.8% 6.4% 5.2% 1.2% 5.3 Balanced 5.3% 5.8% -0.5% -5.6% -5.6% 0.0% 7.5% 6.2% 1.3% 6.4 Active 6.3% 6.5% -0.2% -6.9% -6.1% -0.8% 8.6% 7.2% 1.4% 7.8 Aggressive 7.1% 6.3% 0.8% -8.1% -6.6% -1.5% 9.3% 7.2% 2.1% 9.1 Global Equity 8.2% 6.3% 1.9% -6.4% -6.6% 0.2% 7.2% 5.7% 1.5% 10.5 Inception Dates: Tatton Managed Defensive – Aggressive: 01/01/2013 Tatton Managed Global Equity: 31/10/2013 Note: To 31st January 2019; Tatton returns after DFM charge and underlying fund costs; Global Equity portfolio strategies only launched Nov 2013
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