Asset Management Model Portfolios: January Performance 2016

  • Insight

29 February 2016

2016 got off to a challenging start. More Chinese stock market woes and an unsupportive oil price had investors heading for the exits. Over a challenging January, the Balanced Model Portfolio lost 3.6% whilst the Benchmark lost 1.5%.

January began with a sharp drop in investor risk appetite.  This was triggered by another bout of instability in China’s stock market.  Circuit-breakers designed to reduce volatility proved to be counterproductive.  Ultimately, these mechanisms were removed after being triggered for a second time.  The other major source of market volatility and weakness in risk assets was the oil price which continued on its downward path.  Despite oversupply (rather than reduced demand) being the main driver, this compounded investors’ concerns.

In such an adverse trading environment, our holdings in fixed income and property performed best.  However, by not holding UK gilts, the portfolio underperformed the benchmark as investors flocked into haven assets.  High Yield bonds underperformed with riskier areas of fixed income providing less protection.

Our UK small and mid-cap stock positions were a significant drag on performance after finishing strong last year.  This was more reflective of the ‘risk-off’ investor mood rather than fundamentals.  UK unemployment, for example, fell to 5.1% (the lowest since 2006).  Though the jobs market continued to improve, the Bank of England showed further support for the economy by signalling even more patience with raising interest rates.  We remain positive on these stocks against a backdrop of strong consumer sentiment and low inflation - especially those ‘close to the consumer’.

The worst performing part of the portfolio was US smaller companies.  In addition to the perception that small cap stocks are riskier, softer domestic data clouded the outlook for these stocks.  GDP figures for the final quarter suggested a substantial slowdown, and poor retail sales and industrial production did not help matters.  Although overall domestic growth may be more moderate in 2016, a number of secular growth drivers are still in place.  We remain invested in these stocks in anticipation of recovery and support from currency effects.

After achieving a strong three year track record, it was disappointing to underperform the benchmark at the start of the year.  A few minor changes have been made to the portfolio but, overall, we hold our nerve despite the increased volatility.

Further information

Anderson Strathern Asset Management Limited is a boutique asset management firm that offers independent and whole of market advice to the corporate and private sector relating to financial planning, investment management, pensions and general insurance.For further information or assistance, please contact Alec Stewart or your usual contact at ASAM.

Disclaimer: This data is prepared solely for information and does not constitute investment advice. Please remember that the value of your investment may fluctuate, is therefore not guaranteed and you may not get back the full amount you paid in so you should seek independent professional advice before investing if you are unsure. Past performance is not necessarily a guide to future performance.