The market continued to believe that inflation is set to rise following the success of Donald Trump in the US election, keeping bond markets under pressure. The US 10 Year Treasury Yield rose to 2.45%, up from 2.37% at the end of the month, although off its high of 2.6% partway through the month. Yields were broadly higher across all maturities and the moves were not just restricted to the US market. Yields of other major sovereign bonds, including Japan, all ended the month in positive territory with the exception of Swiss bonds. Yields were generally higher across the board, although in the UK, France and Germany, yields fell reflecting low expectations for interest rate hikes. Against this challenging backdrop, it is pleasing to report better performance for our recommended funds, which benefited from corporates outperforming, helping to regain ground lost in November. The Royal London Corporate Bond Fund and the M&G Corporate Bond Fund added 1.7% and 1.4% respectively at the time of writing. Despite the market pressures, bond investment offers sensible diversification from equities and is likely to outperform if growth prospects stutter again.
In the property sector, the M&G Property Fund continued to edge higher, up 0.5% on the month, as confidence returned following its restoration from suspension in the wake of Brexit.
After a sharp fall in gold in November following the US election, we have seen some stability. The price rallied from the a low of $1,130, although it still fell by over 1% during December. Our recommended funds also exhibited an improvement in performance after a challenging month. The Newton Real Return Fund was down 0.1% on the month at the time of writing. A put on bonds has helped to protect much of the downside in the fixed income markets. The fund also holds a short position in the S&P 500 and is therefore likely to perform well if markets fall. The JP Morgan Global Macro Opportunities Fund benefited from a change in strategy, gaining 1.8%. Investments were amended modestly after the US election to reflect their belief that interest rates are likely to be higher in the US compared to the rest of the world, resulting in increased exposure to US financials and greater long dollar positions against short emerging market and commodity based currencies. The Troy Trojan Fund gained 0.8% on the month. Gold exposure within the fund has been cut modestly.
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