April 2018 Performance
Data released in April showed that the US economy grew at an annualised rate of 2.3% in the first quarter, slightly ahead of the consensus forecasts. Private sector wages rose 2.9% over the same period – the fastest pace in more than 3 years. Rising price inflation means the Fed will likely hike rates more aggressively. Government bonds sold off as a result with the 10-year US treasury yield climbing above the psychological level of 3% for the first time since 2013. Rising borrowing costs will likely detract from company earnings in the future, so despite the best corporate earnings season in more than 7 years, the US equity markets closed the month virtually unchanged.
In the UK, the news was mixed with inflation falling from 2.7% to 2.5% and the release of weaker than expected GDP in the first quarter of only 0.01% – the slowest increase since Q4 2012. As a result, the implied probability of a 25bps interest rate rise, as inferred from interest rate futures, has declined from 90% to just 20%. The gilt market was little changed on the month, but sterling gave back much of the quarter’s gains, falling from 1.43 to 1.38 versus the US dollar.
Geopolitical risks remain elevated, with the US imposing additional sanctions on Russia and the ongoing threat of a trade war with China. However, Kim Jong-Un’s volte-face saw an historic break-through on the Korean peninsular, which could lead to an even further economic tilt towards the East.
The potential threat of supply disruption has been bullish for commodities. US sanctions on commodity producers such as the Russian company Rusal, pushed aluminium prices significantly higher. Brent crude, the international benchmark for oil, rose 7% on ongoing tension in the Middle East and the threat of supply cuts from OPEC. Overall, the S&P Goldman Sachs Commodity Index rose approximately 5%.
The portfolios performed well during the month. Bond and equity market volatility is returning to historical levels. We remain focused on the economic fundamentals, which remain strong for this part of the business cycle.
ACUMEN Bond Portfolio
The ACUMEN Bond Portfolio (GBP) returned -0.42% in April. The Market Composite Benchmark and the IA Mixed Investment 0-35% Shares sector returned -0.51% and 0.35% respectively.
The value of an investment in the Protection Portfolios, ACUMEN Portfolios or Tavistock PROFILES may fall as well as rise. Past performance should not be seen as an indication of future performance. Source of data: Tavistock Asset Management Limited, Thomson Reuters and Lipper for Investment Management unless otherwise stated.