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Deferred Income Portfolio Update - Autumn 2018

24 October 2018

Third quarter performance analysis for the St. James's Place Deferred Income Portfolio Update.

The Deferred Income Portfolio achieved a positive return over the period, as global equities contributed significant growth, while UK exposure detracted.

In the UK, the FTSE 100 lost a little ground over the period, not helped by sterling strength, which came despite rising Brexit uncertainty. There were also major pressures on the UK high street, as a number of household names either folded or announced serial store closures. The UK High Income fund, managed by Woodford, was the main laggard in the Portfolio.

The fund was hit by its high relative exposure to consumer staples, notably British American Tobacco. The share price slide was down in part to analyst downgrades, which reflected concerns over declining market share and a lawsuit instigated against the company by a major rival.

The UK & International Income fund also declined through the period, weighing on Portfolio performance. The fund, managed by Artemis, is highly exposed to the consumer discretionary sector, which performed poorly over the period.

However, the funds with significant US equity exposure performed strongly, far outweighing underperformance in other funds. Good stock selection also helped. In the case of the Global Equity Income fund, managed by Manulife, Nestle was a strong performer. In fact, the Swiss food and drink company opened the quarter already on the rise, possibly as a result of its assurances to the market – following pressure from shareholders – that it was updating its strategy, but also thanks to good second quarter results.

Strong second quarter results (including an annualised sales revenue increase of 10.6%) combined with one of the highest dividend yields in the industry made the stock especially popular with investors over the period.

The Worldwide Income fund, managed by Investec, also delivered robust growth through the quarter. Outperformance by the technology sector in the US – a theme of 2018 as a whole benefited the fund, as did specific stock selection. Microsoft was a particular highlight; the company reported annualised revenue growth of more than 17% and operating income growth of more than 35%. The other major contributor to Portfolio returns was the Strategic Income fund, co-managed by Schroders, TwentyFour, MidOcean and Bluebay. Schroders benefited from its holding in Pfizer, a pharmaceutical major that announced strong results and a corporate restructuring. TwentyFour, likewise, benefited from exposure to Deutsche Pfandbriefbank, a Munich-based bank whose major business is in real estate and public investment. Bluebay, on the other hand, invests in emerging markets corporate credit, was affected by poor performance by emerging market corporate bonds, and detracted slightly.

You may also like to access the full Deferred Income Portfolio Update.

 

The price of funds and the income from them may go down as well as up. You may get back less than the amount invested.

Portfolio fund allocations are not rebalanced automatically. Thus Client Portfolios may not include all of the stocks mentioned in the commentary, as fund allocations may vary between clients, leading to different investment experiences.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

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