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2024

2023

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Question: How have markets performed in the 2nd quarter of 2024? Ronelle Hutchinson: Equities in the U. S. and Europe have continued to rally in the second quarter, while Japanese equities have struggled, weighed down by currency depreciation. Bonds, on the other hand, have lagged pretty much across the board as the much anticipated interest rate cuts by the Fed and the BOE have been delayed due to sticky services inflation.

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Question: Are there any changes in the economic output? Will the election have any impact? Ronelle Hutchinson: We are experiencing a divergence in growth in developed markets. Economic data in recent months from the U. S. has begun to disappoint, pointing to a slowdown, while incoming data from the U. K. and Europe has improved confirming that a recovery is underway. Markets have responded positively to the U. K. election outcome. As evidenced by the pound, which has strengthened, and we think this should fuel investor optimism about the prospects.

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Question: What changes have been made to the portfolios? Andrea Yung: As Ronelle mentioned, we're now seeing opportunities arise within the U.K. Market, and therefore, over the last quarter, we've increased our allocation to the U.K. We've seen for a while that U.K. Markets have looked relatively cheap. However, we've been hesitant to add exposure here, as the U.K. Has continued to face particular headwinds of negative sentiment and economic uncertainty.

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But more recently, we're now seeing those economic concerns eased. We have more political stability and we're starting to see a positive turn in sentiment. It's been a combination of these factors which lead U.S. To believe that now is a time to take advantage of these opportunities. We've also slightly reduced opposition to large cap U. S. companies. Following very strong performance. The valuation of these companies continue to look expensive and there's heightened risk of a correction, especially if these company earnings disappoint. It's important to note, we remain committed to monitoring risk within the portfolios and assuring that our portfolios are never too concentrated in one area.

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Question: How have the portfolios performed? Andrea Yung: At the start of the year, we held a degree of caution for equity markets, given economic uncertainty and persistent inflation. As a result, our portfolios were underweight in equities. What's transpired over the year is actually very strong performance in equity markets, mainly driven by a select number of mega cap U. S. companies. Even though we've had less risk embedded into our portfolios, our performance has still held up well over the first half of the year. Our U.S. Equity allocation, as one may expect, has been the largest contributor to returns across our portfolios. That's been closely followed by our active positions in Asia and emerging markets.

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What's disappointed so far this year has been our exposure to both fixed income bonds and property. These assets are sensitive to interest rates. So as we've seen high interest rates continue to hold. The return has been somewhat limited. However, we do believe interest rates have peaked. And as interest rate cuts prevail, that's when we'll see a positive price movement in these types of assets.

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Questions: What themes are likely to prevail? Does the trend to lower interest rates change equity leadership? Andrea Yung: We think this divergence in growth should follow through to equity returns as earnings recover in the U.K. And Europe, while the prospects for stocks in the U.S. Like the Magnificent Seven begin to dim way down by lofty expectations. As the Fed moves to cut interest rates, we see a broadening out of global investor risk appetite, moving into cyclical stocks and favouring undervalued equity regions outside of the U.S.

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We have a large and experienced research team behind us carrying out the due diligence of these funds and this is reflected in our performance. Ronelle Hutchinson: Our central theme for clients this year is that they maintain portfolio resiliency, mitigating the heightened macro risk that prevails by staying diversified, focusing on quality equity that is reasonably priced, and investing in alternative assets that can deliver uncorrelated returns.

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This chart highlights how our portfolios have been able to protect clients' money in periods of market weakness. The shaded area illustrates a drawdown of our moderately cautious model plotted against the benchmark. And as you can see, our models have provided much stronger protection when markets have declined. And this, in turn, helps us support performance over the long term. Looking at performance, we've seen another strong quarter for markets. Equities were a key driver of returns as the US continued to show signs of resilience. Our positioning in Japan also boosted returns as we saw increasing optimism supported by mild inflation and wage growth. Taking a slightly longer-term view and looking at returns since inception, we have consistently outperformed the benchmark and what supported our performance has been our regional equity allocation and strong fund selection.

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A way in which we manage risk is by taking an active approach. This means rather than just tracking a market or index, we select funds which can identify and take advantage of any undervalued opportunities. As we've seen in the US, the market is very concentrated to such a small number of stocks. And with the US dominating global markets, many of those who are just investing passively are putting a large amount of their money in a very small portion of the market. And this is creating huge concentration risk across our models. We aim to eliminate this type of risk by having a blended approach to various sectors and geographies that help us to provide stable returns over the long term and more resilience in market downturns.

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Andrea Yung: Over the quarter, in terms of portfolio changes, we've taken advantage of the opportunity within emerging market debt. Currently, these bonds are looking attractively priced. They offer a very strong income yield and they're positioned to benefit from interest rate cuts. Despite the short-term inflationary pressures here to date, the broader downward trend of inflation is a positive. These countries are also at the forefront of monetary easing and we've seen Latin America already starting to cut rates. We've also further enhanced the diversification within our UK and emerging market equities by broadening our exposure within these markets. Given the current concentration risk within the market, we believe that diversification and risk management is key.

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Ronelle Hutchinson: We have had a strong rally in global equities at the start of the year. The MSCI All Country World is up 9 percent, driven by double-digit returns in both the US and Japan. Bonds, on the other hand, have disappointed in the short term and commodity prices have moved meaningfully higher. The US economy has continued to surprise on the upside, forcing investors to dial back their expectation of interest rate cuts. The decline in inflation has stalled, specifically the core CPI, which is the main measure for central banks. Sticky service inflation, driven by tight labour markets, is keeping wages elevated. And now, with the meaningfully higher commodity prices, there is a risk that inflation will remain higher for longer.

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In portfolios, we remain underweight equities and US equities specifically, largely because we believe that markets have fully discounted the good news on interest rates. And this is reflected in the relative valuations of US equities versus bonds. As a result, we are finding value in fixed income. Given the attractive starting yields and the fact that should interest rates be cut, fixed income assets will generate the additional benefits of capital gains. Our central theme for investors this year really rests on three principles. Firstly, stay invested. While cash yields appear attractive, looking at the three potential scenarios for the global economy. which is a recession, a soft landing, or stagflation. In three of these scenarios, it is likely that cash will lag other risk assets.

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We've outperformed the benchmark across all models. And it's been our exposure to the US and our more global approach, which has driven returns. Finally, reviewing our performance since inception, we've outperformed the benchmark across all portfolios. Hopefully, this highlights a benefit of active management combined with our strong research capability to select the best funds for your portfolios. Ronelle Hutchinson: Well, the major developed markets of the UK and the US will likely remain at risk of a slowdown. The good news is that the peak of inflation and interest rates are likely behind us, and this should be supportive of households and markets towards the end of the year. However, the timing of the interest rate cuts will remain a source of speculation.

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These changes that we've made to the portfolio this quarter have had a positive impact on the underlying fees of our models as shown here. These cost savings are present throughout all models and will pass on directly to you. We believe this reduction in cost will certainly help to support performance over the long term. So looking at performance, over the last three months, it was very positive for markets. We held up very well, despite being slightly more defensively positioned, and we still managed to participate strongly on the upside. Our performance throughout the year has been extremely positive across our full range, and we're pleased with how we've navigated through both the downturn and the rally that 2023 presented.

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Andrea Yung: Across our models, we've increased our exposure to fixed income bond funds. We continue to see better value in these types of investments, which we expect to perform well as interest rates fall. We remain comfortable with our underlying equity positioning within our models, and therefore we've made very little change to this area. Our models have benefited from the global approach that we've taken, with exposure to the US, Japan and Europe, all of which generated stronger returns than what we saw in the UK in 2023. We've also enhanced our cash returns by adding the Fidelity Cash Fund to our lower risk models which hold slightly higher cash positions.

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Ronelle Hutchinson: The calendar year returns for 2023 contradicted the fears of stagflation and recession that prevailed throughout the year. Global equities rallied strongly, particularly in the fourth quarter, as investors grew more confident of interest rate cuts. As a result, the S&P 500 ended the year up close to 20 percent and the FTSE 100 ended the year up 8 percent. UK bonds outperformed, delivering positive returns and the pound strengthened 6 percent against the dollar. The key area of surprise for investors in 2023 was the fact that global growth proved to be more resilient than expected.

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By keeping our investment universe as wide as possible, we not only give ourselves the opportunity to invest in the best companies worldwide, but we also can diversify exposure which should help to reduce risk. It's worth noting that we are very cognizant of the risks that are currently present in the economy, and our focus is ensuring that we protect money during these times of market weakness. That's why all of our strategies continue to be invested across a range of different asset classes, including bonds, equities in developed markets, equities in emerging markets and we also have a portion invested in assets known as alternative investments.

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The UK market is dominated by energy stocks such as oil and gas. While the US has strong exposure to IT and tech, the likes of Amazon and Netflix. Emerging markets, which include the likes of India and China, are also increasingly producing market-leading companies. These are less thoroughly analysed, less efficient and therefore offer a greater opportunity for better returns. This is why we select for our models what we consider to be the best for managers that specialise in these areas. They have their feet on the ground and they're able to really take advantage of these opportunities as they present themselves.

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What is the current MPS portfolio positioning? Over the quarter, and after a strong return so far this year, we've focused on reducing risk within the portfolios. We've diversified our exposure within the US by reducing our concentration to the large US growth giants that have driven returns. And we've increased our exposure to companies which capture quality businesses that have strong fundamentals and are better positioned to weather economic headwinds. We continue to adopt a global approach when investing, and this charge reflects our thoughts well. What we can see is that no one country has a monopoly on industry leaders.

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And this, amid higher oil prices as a result of production cuts in Saudi Arabia and Russia, is keeping inflation risks front and centre for most central banks. As a result, market participants have had to finally digest a higher-for-longer interest rate outlook this quarter, and this has weighed on sentiment. From a portfolio positioning perspective, we are defensively positioned. We are underweight in equities and have been increasing duration in fixed income as rising yields have made this asset class more attractive.

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What were the key themes driving markets in Q3? After strong gains for shares in the first half of the year, global equities faltered in the third quarter. The S&P 500 delivered negative returns in dollars but was up 0.8% in pounds as the pound weakened against the dollar. UK equities delivered positive returns, up 2.4% for the quarter. Overall, though, the US economy has surprised on the upside and has been much more resilient than anticipated, with strong incoming jobs data.

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Principle number two, stay diversified. Recession and geopolitical risks remain elevated. Therefore, maintaining diversification and portfolio resilience is key. And principle number three, stay global. The outlook for the economy and the prospect for interest rate cuts. opens the opportunity set for a wide range of assets out there. In addition, the new themes of artificial intelligence and deglobalisation and decarbonisation are really transforming industry structures and future winners are still yet to emerge.

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These are hedging strategies which offer a degree of uncorrelation to the standard equity and bond funds and aim to offer the downside protection in periods of economic weakness. So given the recessionary risks that are present, if we do experience market weakness, it's this portion of the portfolio that we believe will offer some protection. We continue to take an active approach and this means rather than just tracking an index, we also select funds that are actively managed. So if we do see market stress, these fund managers can take advantage of any mispricing opportunities.

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We're also supported by a large experience research team, and this allows us to continually review our holdings and ensure that we remain confident that we select the best funds for our models as we transition throughout the market cycles. So just having a look at how our strategies have performed, we now have a full one year performance and we're delighted to show that we've achieved strong returns since we launched. The dark blue line represents our strategies, and this is plotted against the comparable benchmark for each of the models.

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What's driven performance has been our UK equity exposure, most notably through the S&P 500 Index benefiting from the large cap tech names and that slight growth tilt that we've had in portfolios. With that in mind, we feel now is an opportune time to lock in some of those returns and dial down that risk. I hope these returns highlight our preference for active management and the capability of our research team at selecting the best funds in class.

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What are we looking out for into year end? Risks continue to rise in the short term with the war in Israel and a weaker outlook for corporate earnings. But rising bond yields and with this type of financial conditions has raised the prospect that we are close to the peak of the interest rate cycle, so the worst may very well be behind us. Fixed income are offering the highest heels in 15 years and this is a very attractive risk reward trade-off and we are finding value in this area. There are also pockets of opportunity and equities and this is outside the mega caps and the broader market indices where valuations are depressed, like Europe and small caps, and these assets might benefit from any reprieve in interest rates and as a result, we are looking to add to equities in the months ahead.

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No Transcript

2plan Wealth Management is authorised and regulated by the Financial Conduct Authority. It is entered on the Financial Services Register (www.fca.org.uk) under reference 461598. Registered address: 3rd Floor, Bridgewater Place, Water Lane, Leeds, LS11 5BZ. Registered in England and Wales Number: 05998270

This improvement was driven by stimulus measures from the Chinese government, which helped to boost investor confidence. Looking at our performance since inception, our portfolios remain strong relative to the benchmark. This has been supported by our regional allocation and fund selection. We continue to take a long term approach to investing, with a focus on protecting assets during market weakness. Ronelle Hutchinson: With a synchronised easing in global interest rates taking hold, we think investor risk appetite for cyclical stocks and undervalued regions like the UK and Europe should improve. It is likely that in this new regime, new winners will emerge and we are advocating that investors prepare by remaining diversified. We recommend staying invested in higher yielding assets, quality fixed income assets that should provide some portfolio stability in the event of any adverse market shock.

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We're also seeing value in small and mid cap companies, which have been weighed down by higher interest rates. Current valuations are looking particularly attractive. As monetary policy begins to ease and interest rates decline, we anticipate that small and mid-sized firms will experience a stronger benefit, leading to enhanced returns. As we reflect over the quarter, all portfolios generated positive performance. It's been those assets which are sensitive to interest rates that have generated the strongest returns. Our lower risk portfolios have performed better due to higher exposure to global bonds and property. Our Asian and emerging market funds, which include investments in China, performed very well towards the end of the quarter.

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Andrea Yung: As Ronelle mentioned, we're more confident on the outlook for the global economy. We've seen inflation begin to moderate and central banks start to cut rates, and for that reason, we made the decision to increase our equity allocation. We've increased our exposure here to UK companies. In recent years, economic concerns and negative sentiment have been a headwind for the region. The UK sector composition and lack of technology exposure has also caused it to lag other developed markets. However, the UK stands to benefit from investors looking to diversify into other areas of the market. And also the macroeconomic environment is a lot more favourable than what it has been in previous years.

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Ronelle Hutchinson: Over the quarter, we saw banks rally as the key central banks like the Fed and the BOE moved to cut interest rates. UK bonds for the first time in a while outperformed UK equities, up 2.7 percent. Equities were up 2 percent, pushed higher by investor optimism post the elections. In a surprise development for this quarter, we saw that the S&P 500 in pounds delivered negative returns, largely as a result of the pound strengthening 6 percent over the quarter. With large parts of the developed world cutting interest rates, and with China joining in and implementing substantial fiscal and monetary policy measures to resuscitate the economy, we are more confident on the outlook for growth in the months ahead. And as a result, we are more optimistic on the outlook for equities in general.

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In our lower risk models, we have reduced our allocation to emerging markets due to the economic concerns within China. The Trump administration with their threat of tariffs and a potentially stronger dollar are going to be a headwind for the region. We do however believe that US growth continues to look optimistic. Economic data remains positive, and a trump victory supports lower taxes and deregulation which will help US companies, especially those that are domestically focused. Our preference has been focused on high quality companies, with strong fundamentals and we’ve maintained our overweight position here.

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Thus, in this new regime, it is likely that new winners will emerge. Investors therefore should maintain diversification and remain invested in high quality fixed income assets that can provide the portfolio stability in the event of unanticipated shocks. Andrea Yung: So, over the quarter we have enhanced our exposure to UK government debt and reduced our exposure to corporate bonds. We believe that the returns achieved by investing in government debt is more favourable when factoring in the level of risk that you’re taking.

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Although bonds have been disappointing for investors, our fund selection and allocation to shorter dated bonds have helped support our returns in this area. And looking at our performance since inception, our portfolio returns remain strong relative to the peer group across the full range. We continue to take a long-term approach to investing, with a focus on downside protection with an aim to limit drawdowns when markets are weak. Ronelle Hutchinson: Policy uncertainty is likely to dominate in 2025 but if we focus on the fundamentals, the easing in interest rates and the prospects for deregulation combined with integration and the possible early adoption of artificial intelligence (AI) could lead to a broadening out of economic activity.

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Ronelle Hutchinson: Despite the market volatility, equities performed well with the MSCI All Country World (ACWI) up 20% in pounds. However fixed income disappointed, this is despite interest rates falling. The UK Gilt index returned -3%. The result of these returns is that our more defensive, lower risk profiled portfolios once again trailed returns from our higher risk portfolios. Andrea Yung: So, if we turn to performance, looking at 2024, we’ve been really pleased with how our portfolios have performed, especially in our higher risk models and how they have outperformed the peer group. As we have seen, returns have been driven by the largest US companies and despite us taking less risk at the start of the year, our portfolios have still participated well in the market rally.

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It’s important to remember than market corrections are common place in equity markets. We have seen this in recent years during the pandemic in 2020, we’ve seen it in 2022 when there has been increased inflation and interest rates. As history has proven, the long-term trend shows that markets recover and grow over time. Looking at our performance over the long-term, despite the recent market downturn, our models have provided strong performance since inception. It’s important to remain diversified and this helps to manage risk and provide stability. We take an active and long-term active approach to investing and corrections like this can present good buying opportunities for investors.

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Andrea Yung: It has been a volatile period for markets so far this year, following the increased threat of a global trade war. There have been large disparities in terms of performance across different regions and asset classes. Bonds held up relatively well over the quarter as investors sought refuge in lower risk assets such as government bonds. This is why our lower risk models, which tend to have a larger allocation to bonds have held up better relative to our higher risk models. However, what is reassuring is we have been able to provide a slightly higher degree of protection on the downside in these higher risk models, relative to the benchmark.

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Firstly, we have moved to mitigate the risk in the portfolios, reducing our US equity exposure to underweight and increasing our exposure to alternatives to diversify the portfolio, limit portfolio volatility and further mitigate drawdown risk. In addition, we have added to Europe to take advantage of the opportunities in European equities as a result of the improved economic outlook. We encourage investors to a keep long term perspective. Short-term market volatity also provides the opportunity to buy good quality assets at cheaper prices allowing the portfolio to benefit from higher starting yields and with that allowing the portfolio to compiund good returns over the long-term. As a result we encourage investors to remain invested.

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Ronelle Hutchinson: Coming into 2025, markets were confident that Trump would have a positive effect on US growth sustaining the expectations embedded in US valuations, but the scope of Trumps tariff policy has been a huge surprise which has amplified three key risks: higher inflation, lower and possibly slower growth in the US and with that the prospect of lower corporate profitability. In a surprise reversal of fortunes, stocks in China, Europe and the UK have delivered positive returns while fixed income assets have also retained it’s value and are marginally up providing support to a multi-asset portfolio.

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2025

Towards the end of last year, we cited concerns around the potential vulnerabilities of the mega cap US growth companies that have driven returns, we’ve reduced our exposure here in favour of quality companies that are more reasonably valued and we have continued to do so in recent months. This has led to us being better positioned to navigate through the turbulence that we have seen so far this year. As we anticipate that volatility may continue in markets, we are keeping an overweight position to our alternative assets, these aim to provide a degree of protection during market weakness. These types of assets exhibit low volatility, have a strong focus on risk management, and have actually provided resilience for us in the face of weaker equity markets. We are also maintaining our exposure to government bonds, which we believe will hold up well if markets do experience a downturn.

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We have a strong focus on risk management within our investment process, by assessing how our investments could perform in different market conditions, this ensures our portfolios are well diversified by investing across different asset classes and different regions. This allows us to minimize exposure to any single market and helps us to smooth out returns. With our long-term, actively managed approach, we aim to be well-positioned to capitalize on any emerging opportunities while trying to navigate the volatility of markets. This approach ensures that we remain focused on strategic decisions and avoiding the impulsive reactions to short-term market fluctuations.

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2024

Firstly, we've taken a more global approach to equity investing. As a result, we’ve reduced our exposure to the UK and we’ve increased our investment in overseas markets, particularly in Europe, this is where we see strong potential going forward. This global approach should enhance our potential to seek stronger returns. Secondly, within our bond exposure, we’ve made adjustments to help manage both credit and currency risk. We’ve reduced our holdings in corporate bonds. Instead, we’ve reinvested into more global government bonds that are currency-hedged, and we believe this will provide greater stability in today’s environment.

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This slide illustrates how our portfolios performed during periods of market stress. The shaded areas highlight significant market declines, such as in April, where you can see our portfolios demonstrated greater resilience. This drawdown protection is a key part of our risk management strategy, helping to preserve capital and support long-term performance. When we review performance since inception, our portfolios have consistently outperformed their benchmarks across all risk levels. This reflects our commitment to delivering strong, long-term results through a disciplined focus on managing downside risk and achieving attractive risk-adjusted returns.

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Markets were unsettled by concerns around U.S. tariffs, which triggered a sharp sell-off at the beginning of April. However, a strong earnings season, particularly from major US technology companies, helped global growth stocks recover significantly. Because we had consciously reduced our exposure to these growth stocks earlier this year, we didn’t fully participate in that rebound. However, this was a conscious decision aimed at prioritising portfolio stability during a very volatile period, and we believe that approach proved effective. Especially when looking at how our portfolios have been able to protect during periods of market weakness.

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Sustained strength in the US economy and better than expected earnings growth is a real risk to our US view. European growth is disappointing with fiscal spending under-delivering and weaker consumer demand, will be a risk to our overweight Europe view. Over the next couple of months, we’ll be watching economic data like GDP and purchasing manager surveys, consumer confidence and retail numbers to determine consumer demand. We’ll also be watching inflation and the extent to which this will impact the likelihood of central banks cutting interest rates. Clearly a lot to keep us keenly focused on market developments and focused on delivering the right outcomes for your portfolios. Andrea Yung: Our portfolios have delivered positive returns overall, despite experiencing some market volatility over the past three months.

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While we remain marginally underweight US equities, over the quarter we have used equity weakness to upweight US equities in the 2plan portfolios and align closer with the new Global SAA. We continue to be overweight European equities, leaning into the improved outlook in the region due to fiscal spending and lower interest rates. With valuations also fairly undemanding in this region, we have maintained our exposure to alternatives but have enhanced protection focused on relative value strategies to limit portfolio volatility and drawdown risk. In addition,we remain overweight fixed income but are shorter duration relative to the benchmark. This is due to the higher levels of bond volatility, potentially higher inflation, and the higher levels of government debt that we’re seeing this year.

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Ronelle Hutchinson: Absolutely, markets appear to have shrugged off the worst of the tariff uncertainty and geopolitical risks, to climb higher, but what continues to be uniquely different this year, is the extent to which international Equities have dramatically outperformed the U.S. Europe is up +12.5%, the UK is up 9% and this is all vs the S&P 500 which is down 3% in pounds. Part of this outperformance is due to the weakness of the U.S. dollar with the dollar ending the first half down almost 10%. Commodities on the other hand, have sustained their performance with gold up over 13%, providing a buffer to the trade tensions, inflationary risk, and geopolitical challenges that we have seen this year.

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Finally, we’ve reduced exposure to property and added funds that we believe will offer better protection if markets become volatile. These types of funds are designed to help cushion the impact during downturns. While they may not lead the way if markets rally, we believe they play an important role in reducing overall volatility and preserving capital during periods of uncertainty. These types of funds are there to help cushion the portfolio during periods of market downturns. Overall, these changes are designed to ensure that the portfolio is well-balanced and resilient as we move through what could be a more challenging second half of the year, especially if we see increased geopolitical tensions and impacts from the US trade agreements.

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