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The Route – Future’s Portfolio Review: Summer Outlook

With the second quarter now behind us, we take a look at how The Route – Future’s portfolios have performed over that period and what to look forward to over the months ahead.

PortfolioQ2 (%)Benchmark (%)+/-YTD (%)Benchmark (%)+/-1 Year (%)Benchmark (%)+/-3 Year (%)Benchmark (%)+/-5 Year (%)Benchmark (%)+/-
Moderately Cautious12.9110.62.312.72-4.026.745.49-1.356.8416.0811.2911.2943.3019.2824.02
Moderately Adventurous22.7214.698.032.53-3.886.418.62-0.579.1921.8213.1513.1558.5829.1029.48

Short term and medium term portfolio performance available on request.

Review of the past quarter

Financial markets recovered strongly after the sell-off in the first quarter of 2020. The recovery was led by US and emerging markets equities, but most asset classes produced strong returns after central banks and governments around the world stepped in to calm financial markets and provide financial support to businesses and workers unable to earn due to state sanctioned shutdowns.

The scale of government and central bank support has been far greater than anything seen in previous crises and has effectively put a floor under markets in the short term. The spread on corporate bonds has fallen back to more normal levels. US equities have seen some of the best performance due to the sharp increase in the value of its technology sector, while emerging markets have so far experienced less severe consequences of the economic shutdown.

Financial markets received further support as the quarter progressed, as countries gradually emerged from lockdown and some economic activity restarted. However, there have been bouts of volatility as markets appear nervous because of the speed of market recovery and that further outbreaks of coronavirus could bring further economic shutdown.

In a further sign of uncertainty amongst investors, government bond yields remain near historic lows, and although the value of the US dollar has fallen slightly over the quarter, the price of gold has continued to rise.

   Asset Class Returns   
CashGovernment BondsIndex Linked BondsCorporate BondsUK EquitiesOverseas EquitiesEmerging MarketsProperty


The actuarial view

As might be expected, the outlook has worsened across the board. Japanese equities appear to have avoided the worst fall out, although questions over the country’s relatively low-key coronavirus interventions remain. UK equities are somewhat protected by UK sterling weakness, foreign earnings and a substantial repricing. Lower rates suppress fixed-income returns. Credit spreads blew up in March. They have since recovered a little, but the potential for defaults, further rating downgrades and liquidity panics remain, and expected returns have suffered more than government bonds. The outlook for property is pretty bleak over the next few months and, with significant probability, for some time after that.

The effect on short-term and, at low risk levels, medium-term allocations includes a shift to cash from bonds as at lower yields the asymmetric risk of bonds becomes less attractive. UK equities gain a little at the expense of overseas equities.

What to look for in the next quarter

  • UK: The Monetary Policy Committee (MPC) announcements and minutes are set to be released on 6 August. Preliminary GDP growth for Q2 is available on 12 August. Jobless claims change to be published on 16 July. The number of new daily coronavirus cases.
  • US: There will be interest rate decisions from the Federal Open Market Committee (FOMC) on 28-29 July. Minutes will be published three weeks after each decision. GDP growth for Q2 to be released on 30 July. Change in Nonfarm Payrolls expected to be available on 7 August. The number of new daily coronavirus cases.
  • Eurozone: Quarterly GDP flash data is set to published on 31 July. A European Central Bank monetary policy meeting has been arranged for 16 July. Unemployment rate for June set to be published on 30 July.
  • Other Data: There will be an interest rate decision from the Bank of Japan on 15 July. JPMorgan Global Composite PMI is set to be published on 6 July and IHS Markit Global Business Outlook on 12 July. The International Energy Agency monthly report is due on 10 July.

Past performance is not a guide to future performance. The value of investments can fall and you may get back less than you invested.  All information within this article is for illustrative purposes only and is not intended as investment advice. Data sourced from FE Analytics and Bloomberg Finance LP.

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