Our views on Fixed Interest, Property and Alternatives for August 2017

Fixed Interest

The market strengthened during August with the movement influenced by the latest statement from the Fed.  Whilst the Fed remains on course to announce measures to unwind its balance sheet later this year, the latest minutes revealed that concerns were raised by some members with regard to the longer term outlook for inflation.  They expect the rate to remain below 2% for longer than expected.  These fears were sufficient to push bond yields lower across the curve with longer dated maturities seeing better gains than shorter dated issues.  The pivotal ten year bond yield dropped from 2.3% to 2.12%.  A similar trend was in evidence in the UK following the latest Bank of England (BOE) Monetary Policy Committe vote.  The committee voted 6-2 to keep rates on hold as opposed to a 5-3 verdict in the previous meeting.  This appeared to reflect weaker inflation.  In response, yields fell broadly evenly across all maturities.  The ten year gilt yield declined from 1.28% to 1.08%.  Quality corporate bonds have continued to perform well, although we note weakness in certain high yield issues.  This shows the benefit of investing in a specialist fund in particular in the high yield sector.  We continue to recommend the Baillie Gifford High Yield Bond Fund which outperformed over the month, gaining 0.4%.

Property

The sector enjoyed another good month as interest rate expectations were dialled back.  Of our preferred holdings, the F&C Commercial Property Fund added 1.1%.  The iShares MSCI Target UK Real Estate UCITS ETF, a trust composed of listed REITs and short dated index linked gilts to add liquidity, gained 0.4% on the month.  Whilst some uncertainties persist, largely due to Brexit, arguably the large discounts to NAV suggest that much of the potential downside is already priced in.

Alternatives

Gold continued its strong performance, rising over 3% on the month to close convincingly over $1,300, the best level in nearly a year.  The precious metal benefited from two main factors.  Firstly, political instability notched up another level as North Korea stepped up its nuclear missile tests, firing a mid-range weapon over Hokkaido, Japan.  Secondly, gold also gained from a lowering of long term interest rate expectations in the US following the latest meeting of the Fed.  Lower interest rates generally make gold more attractive because the relative value of cash is considered to be less attractive. 

Both of our preferred total return funds saw decent gains on the month. The Troy Trojan Fund added 1% with the Newton Real Return Fund up 0.6%.  Infrastructure stocks were also solid with valuations now looking generally more appealing with HICL Infrastructure Company Limited rising 1.6% during August.  All of our selections in the alternatives sector aim to provide positive returns whilst decreasing portfolio volatility by providing diverse sources of returns.  We believe they have broadly achieved these goals and expect them to continue to do so in the medium term.

If you are unsure whether an investment is right for you, please contact us for advice on 0800 877 8866 or by email at enquiries@whirelandwm.com

Please click here if you would like to signup to receive these insights on a monthly basis, delivered straight to your inbox.