Paul Durrans, Investment Analyst, and Chris Leyland, Investment Director, discuss the latest True Potential Portfolios performance and give their latest market analysis.

Paul – One month on from our last video, markets have certainly been difficult, with heightened volatility in equity markets. Why have markets been so unsettling?

Chris – As we have moved through the year, market conditions have varied culminating a volatile October. Many investors feel that the US potentially got ahead of itself in October with investors nervous around global growth should the Federal Reserve keep raising interest rates. This type of backdrop serves to remind us that multi asset investing is beneficial, not being restricted to one single asset category. When prices fall in one area, but not in another, it opens up opportunities for us to buy quality assets at lower prices. Agility will bring rewards.

Paul – What are the key risks right now?

Chris – Risks remain apparent, but actually this is nothing new. They have been on the horizon for some time now: Brexit instability, the potential for a US/China trade war and nervousness around interest rate rises in the US. In fact, they have been with us for virtually all of 2018 and this negative sentiment is now being absorbed into prices.

If you look at what has happened in November so far, global stock markets have shown in general positive returns, bouncing back from October’s volatility, with Emerging Markets and Asia showing clear leadership. Some of our managers have used this as a buying opportunity, accessing assets at more favourable prices in order target growth opportunities. Investor styles are evolving, no longer being driven by price momentum but the more traditional factor, valuation.

Paul –Have the managers moved more defensively?

Chris – Well, our managers have been making underlying changes, rotating to more defensive asset classes such as bonds and alternatives but also sectorally within equities. You have seen the likes of Close Brothers trimming some of their growth, US tech stocks after the strong Q3 earnings reporting and buying more value/quality orientated stocks like utilities.

Paul – What changes have you made to the Portfolios?

Chris – In terms of portfolio positioning we have been making small tweaks to the manager allocation with the emphasis on manager investment style. We have trimmed exposure to Allianz and Goldman Sachs and added to Close Brothers and the True Potential Growth Aligned funds. We switched money towards Close Brothers based on their strong stock picking skills which have worked well during the recent volatility and its investment style of quality growth has and is expected to continue to contribute to diversification within the portfolio. We also added to the True Potential Growth Aligned fund, the fund has performed well illustrating a both a strong asset allocation and fund selection process.

Paul –  So tricky markets recently but we’ve made a number of small portfolio changes to hopefully help the portfolios navigate through markets going forward. I suppose the what everyone wants to know is what your expectations are for the next 3-6 months and can investors expect positive returns?

Chris – Yes positive returns can be had, equity markets have fallen so asset prices are now lower. When we speak to our fund manager partners, they are all still constructive on the overall outlook citing generally accommodative monetary policy, robust economic data, attractive valuation levels and strong company fundamentals. However, the positives can at times be masked by worries which push prices down, creating opportunities to invest using positive cashflow, something we are benefiting from unlike many other investment managers. We must stress again that for long term investors negative sentiment is of limited concern. It means potentially higher returns lie ahead provided positive fundamentals remain intact.

Paul – So to sum up, we still remain constructive on markets moving forward, risks are clearly apparent, but it is important not be bogged down on negatives as you potentially will lose out on the positives. The key is to stay invested, downplay media scare stories and compound up investment growth.

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