Coutts Mid-Year Investment Outlook 2018: A New Frontier
July 18, 2018

Technology, European equities and healthcare and are all identified as key opportunities for growth by Coutts in its 2018 Mid-Year Investment Outlook – A New Frontier. At the start of last year, Coutts highlighted seven investment themes that research indicated would deliver positive returns and would continue to deliver value over the long term. At the half way point of 2018, 18 months later, the average return so far from all of the opportunities (excluding sterling) is 18.1 percent, compared to the general market return of 8.9 percent*.

Mohammad Kamal Syed, Global Head of Markets, said: "Over the course of 2018, our model indicators have guided us to become more cautiously positioned but overall we are still positive on risk assets such as equities and corporate bonds. For example, we took some profit from our emerging markets equity holdings and added to developed equites, reducing risk while maintaining our overall exposure to equities.

"Within international equities, we continue to favour Europe and Japan. We also see UK equity as attractive, supported by the growing global economy and an appealing dividend yield, despite being unloved by the majority of investors. We extended our contrarian view in February to add to our UK equity position as markets fell and are now looking at healthy profit as a result. We're currently neutral on UK property, and sold some exposure in March in favour of the FTSE 100.

"We think long-term returns from government bonds are likely to remain low or even negative and prefer corporate bonds. We favour alternative investment strategies – such as absolute return or momentum strategies – for diversifying risk."

House View

·         Technology (Coutts return 54.1 percent versus Market return 41.2 percent) had a wobble as Facebook's mishandling of user data highlighted potential problems with the business model of some of these digital behemoths. Two areas of risk stand out: regulation on the use of user data that could disrupt business models and continued scrutiny on how these global businesses pay tax. There has been some profit taking as a result but the long term prospects remain attractive.

·         European Equities (Coutts return 22.5 percent vs Market return 13.6 percent) Sluggish growth in the eurozone has weakened performance in 2018. However we are expecting European equities to fare better in the second half of the year as the temporary factors behind the lower growth subside, such as the strong euro.

·         Healthcare (Coutts return 16.9 percent vs Market return 11.4 percent) has suffered from the rising trend in interest rates which is traditionally negative for defensive sectors. The long term investment case remains attractive, however, and the sectors defensive qualities will be helpful in economic woes emerge.

·         Alternatives (Coutts return 5.9 percent vs Market return 2.4 percent) strategies such as absolute return or momentum funds, helped to offset some of the volatility we have seen from equities this year. We continue to like their low or negative correlation to equities and diversification benefits a result, but the long term prospects remain attractive.

·         Financial Credit (Coutts return 7.7 percent) Sterling has weakened this year after a strong run in 2017. Recent economic data from the UK has put a dent in the upward trajectory, and Brexit negotiations may generate some negative sentiment towards the currency.  Longer term we continue to see sterling as undervalued. 

·         Short dated bonds (Coutts return 1.9 percent vs Market return 2.8 percent) While returns have been flat our positions have fared well compared to the broader bond market. The outlook for inflation and economic growth will be key for this theme going forward.

Mohammad Kamal Syed continued: "Change is getting faster and the accelerant is technology. The pace of life is speeding up and the merger of human and digital is strengthening. At times, it can be unsettling. But – and it's a big but – amongst all the change, we are seeing more opportunity and more innovation than ever before. It's an exciting time to be alive.

"If you want to know the thoughts of the US President, just go on Twitter. If you want to get from A to B conveniently and cheaply, just use Uber. There's every chance you're reading this report on an Apple product, and if you're listening to music at the same time, you might be using Spotify. Ten years ago we'd never heard of Spotify because it didn't exist. Fast forward to April 2018 and we saw the music app being valued at US$26.5 billion at its initial public offering (IPO) on the New York Stock Exchange. Technology has barged its way into our daily lives and it's the biggest reason why modern life is changing as quickly as it is."

"In our 2018 Mid-Year Investment Outlook, we urge you to embrace change. Embrace a world that is finding new ways to solve its problems. Embrace a world of new opportunities to learn and grow.  At Coutts, we try to take this approach every day because we think that failure to do so harms our clients' wealth. We relentlessly seek those investment opportunities that will help us preserve and grow our clients' wealth better than our competitors. That is why our key investment themes this year focus largely on innovation, as increasingly seen in sectors such as healthcare. It is helping drive valuable change, with tangible benefits, and the results are incredible." 

* Based on 50 percent UK equities and 50 percent gilts.





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Technology, European equities and healthcare and are all identified as key opportunities for growth by Coutts in its 2018 Mid-Year Investment Outlook – A New Frontier. At the start of last year, Coutts highlighted seven investment themes that research indicated would deliver positive returns and would continue to deliver value over the long term. At the half way point of 2018, 18 months later, the average return so far from all of the opportunities (excluding sterling) is 18.1 percent, compared to the general market return of 8.9 percent*.

Mohammad Kamal Syed, Global Head of Markets, said: "Over the course of 2018, our model indicators have guided us to become more cautiously positioned but overall we are still positive on risk assets such as equities and corporate bonds. For example, we took some profit from our emerging markets equity holdings and added to developed equites, reducing risk while maintaining our overall exposure to equities.

"Within international equities, we continue to favour Europe and Japan. We also see UK equity as attractive, supported by the growing global economy and an appealing dividend yield, despite being unloved by the majority of investors. We extended our contrarian view in February to add to our UK equity position as markets fell and are now looking at healthy profit as a result. We're currently neutral on UK property, and sold some exposure in March in favour of the FTSE 100.

"We think long-term returns from government bonds are likely to remain low or even negative and prefer corporate bonds. We favour alternative investment strategies – such as absolute return or momentum strategies – for diversifying risk."

House View

·         Technology (Coutts return 54.1 percent versus Market return 41.2 percent) had a wobble as Facebook's mishandling of user data highlighted potential problems with the business model of some of these digital behemoths. Two areas of risk stand out: regulation on the use of user data that could disrupt business models and continued scrutiny on how these global businesses pay tax. There has been some profit taking as a result but the long term prospects remain attractive.

·         European Equities (Coutts return 22.5 percent vs Market return 13.6 percent) Sluggish growth in the eurozone has weakened performance in 2018. However we are expecting European equities to fare better in the second half of the year as the temporary factors behind the lower growth subside, such as the strong euro.

·         Healthcare (Coutts return 16.9 percent vs Market return 11.4 percent) has suffered from the rising trend in interest rates which is traditionally negative for defensive sectors. The long term investment case remains attractive, however, and the sectors defensive qualities will be helpful in economic woes emerge.

·         Alternatives (Coutts return 5.9 percent vs Market return 2.4 percent) strategies such as absolute return or momentum funds, helped to offset some of the volatility we have seen from equities this year. We continue to like their low or negative correlation to equities and diversification benefits a result, but the long term prospects remain attractive.

·         Financial Credit (Coutts return 7.7 percent) Sterling has weakened this year after a strong run in 2017. Recent economic data from the UK has put a dent in the upward trajectory, and Brexit negotiations may generate some negative sentiment towards the currency.  Longer term we continue to see sterling as undervalued. 

·         Short dated bonds (Coutts return 1.9 percent vs Market return 2.8 percent) While returns have been flat our positions have fared well compared to the broader bond market. The outlook for inflation and economic growth will be key for this theme going forward.

Mohammad Kamal Syed continued: "Change is getting faster and the accelerant is technology. The pace of life is speeding up and the merger of human and digital is strengthening. At times, it can be unsettling. But – and it's a big but – amongst all the change, we are seeing more opportunity and more innovation than ever before. It's an exciting time to be alive.

"If you want to know the thoughts of the US President, just go on Twitter. If you want to get from A to B conveniently and cheaply, just use Uber. There's every chance you're reading this report on an Apple product, and if you're listening to music at the same time, you might be using Spotify. Ten years ago we'd never heard of Spotify because it didn't exist. Fast forward to April 2018 and we saw the music app being valued at US$26.5 billion at its initial public offering (IPO) on the New York Stock Exchange. Technology has barged its way into our daily lives and it's the biggest reason why modern life is changing as quickly as it is."

"In our 2018 Mid-Year Investment Outlook, we urge you to embrace change. Embrace a world that is finding new ways to solve its problems. Embrace a world of new opportunities to learn and grow.  At Coutts, we try to take this approach every day because we think that failure to do so harms our clients' wealth. We relentlessly seek those investment opportunities that will help us preserve and grow our clients' wealth better than our competitors. That is why our key investment themes this year focus largely on innovation, as increasingly seen in sectors such as healthcare. It is helping drive valuable change, with tangible benefits, and the results are incredible." 

* Based on 50 percent UK equities and 50 percent gilts.



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