Managed Portfolio Service Newsletter – January 2021

January 2021 Update Provided by Quilter Cheviot

Investors were ultimately rewarded for their patience and discipline during 2020. Positive vaccine news, the US election outcome and the eleventh hour announcement of a Brexit deal all helped boost sentiment in the final quarter of an exceptionally volatile year for financial markets, with the announcement of further stimulus packages also providing additional support. A period of strong gains for risk assets was notable too for the dramatic rotation seen in market leadership towards those sectors most impacted by the COVID-19 pandemic. However, this late rally failed to offset the primacy of ‘growth’ stocks (notably Technology and Consumer Services names) over the year as a whole.

The Prosser Knowles MPS strategies delivered a positive return in the final three months of the year and for 2020, with this momentum continuing into the first weeks of 2021. Over the quarter the model strategies rose between 3-8%, depending on their risk level. From a regional perspective, while the UK stock market endured a torrid 2020 relative to many of its major international peers, the last few months saw it end this run of underperformance. Strong gains were posted by more economically-sensitive mid and small-cap stocks as Brexit headwinds also subsided, while at the sector level cyclical / value names across the Energy, Travel & Leisure and Financials sectors all rallied strongly. Elsewhere, Asian and emerging markets also delivered double-digit returns in sterling terms, with pleasing gains posted across North American, European and Japanese markets too.

This month we have implemented a number of adjustments to the model strategies’ positioning that can be characterised as a refining of exposures, rather than wholesale change. At the asset allocation level there has been very little in the way of activity. Rather, our focus has been on incorporating a number of new funds within the models. Within the UK equity exposure, we have selectively increased exposure to cyclical / value stocks, as well as the mid-cap segment of the market. Several new holdings have been included within portfolios as a consequence, including Schroder Recovery and the HSBC FTSE 250 Index fund. We expect these positions to benefit from further recovery in 2021.

Across the US allocation we have increased the ‘active’ fund exposure with the addition of two new holdings – the Schroder US Large Cap and Vulcan Value Equity funds – while a similar rotation towards ‘active’ holdings has also taken place within the emerging markets allocation with the introduction of the Vontobel mtx Sustainable Market Leaders fund. This fund is managed by Vontobel’s ‘Matrix’ team in Zurich, Switzerland, with this description denoting the fact that quantitative screening is undertaken in their investment process. The fund will typically invest in 30 to 50 holdings, with an approach that focuses on identifying fast growing and well-run companies while still retaining an eye on their valuation. In summary, this results in a relatively balanced portfolio, with a natural emphasis towards selecting industry-leading companies which are amongst the most profitable within their sector, trading at a discount to their intrinsic value while demonstrating an ability to address environment, social and governance (ESG) issues. Please speak to your adviser should you wish for further details on any of the new holdings.

Looking ahead, the magnitude of the economic collapse experienced in 2020, the ensuing policy response and the launch of vaccine inoculation programmes have set the scene for a significant recovery in 2021. A successful vaccination of countries’ populations should allow those economies to function closer to normal by the summer. Meanwhile, central banks remain committed to keeping interest rates low in order to give this recovery time to bed in. A robust pick-up in prospects for the second half of the year should also allow corporate profits to bounce back, particularly in sectors badly impacted by the virus. Lastly, political trends may also be more favourable in 2021, with a more traditional style of government returning to the White House. President Biden should have enough backing to pass further stimulus spending for the US economy, particularly in the area of green infrastructure and measures to address climate change.

In combination, these prospective tailwinds provide reasons to be optimistic about 2021, and suggest that stock markets should still be able to deliver a good return this year, building upon the progress made since the sharp falls of last March. Equities also continue to offer the best value, given that bond yields remain so low, or indeed negative in some cases. On the other hand, we remain cognisant of the strength of the recent rally, and with sentiment and positioning indicators suggesting that investors are euphoric at the prospect of recovery, we temper this enthusiasm with a note of caution.

MEET THE PROSSER KNOWLES MPS INVESTMENT TEAM

The Quilter Cheviot Managed Portfolio Service (MPS) team has an 18-year track record of delivering successful client outcomes, and a proud reputation for innovative partnership with financial advisers. The team comprises a dedicated Investment Management capability that sits at the heart of the Quilter Cheviot investment process as well as Platform & Services specialists focused on ensuring the smooth running of all aspects of the service.

From left to right:
Scott Wilcox, Platform Executive: Scott’s role incorporates two key areas – firstly, to ensure that both intermediaries and colleagues are provided with timely information relating to the overall MPS service; and secondly, to work closely with our platform partners to ensure the efficient running of the platforms. Scott previously worked at M&G Investments for 8 years and he has also undertaken contract roles at RBS Coutts, Mercer and Financial Express. Scott graduated from the University of Huddersfield with an honours degree in Law and has also completed the Investment Management Certificate (IMC).

Toni Adochitei, Administrator: Toni is the main point of contact for MPS and Platform operational and administrative queries. Toni’s primary role is to assist with production and oversight of MPS documentation and literature. Toni also produces and maintains MPS and third party platform management information, as well as providing support to the Investment Managers and Business Development Teams.

Antony Webb Chartered FCSI, Portfolio Manager: Antony joined Quilter Cheviot in 2010 having graduated from University College London with a BSc (Hons) degree in Economics. He is a portfolio manager on the Quilter Cheviot Managed Portfolio Service (MPS), and sits on the firm’s Investment Funds Committee. Antony has completed the Investment Management Certificate (IMC) and the CISI Masters in Wealth Management.

Simon Doherty Chartered FCSI, Lead Portfolio Manager: Simon joined Quilter Cheviot in 2007 and is lead portfolio manager of the Quilter Cheviot Managed Portfolio Service (MPS) and chair of the firm’s Investment Funds Committee. A graduate of Trinity College Dublin with a first class honours degree, Simon has completed the Investment Management Certificate (IMC), the CISI Masters in Wealth Management and has passed Level I of the CFA Program.

Olivia Wingrove, Investment Analyst: Olivia joined the MPS team in 2017, having graduated from the University of Exeter with a first class honours degree in Politics, Philosophy and Economics. Olivia supports the Managed Portfolio Service (MPS) Investment Managers with the ongoing management of the MPS strategies and is primarily responsible for monitoring the strategies’ allocations and risk profiles relative to their strategic benchmarks and assisting with the production of performance attribution data. Olivia has successfully passed Level I and II of the CFA program and has also completed the Investment Management Certificate (IMC).

Wayne Smith, Platform Manager: Wayne graduated from the University of Witwatersrand (South Africa) with an MSc in Botany. He came to the UK in 2000 and worked for investment management and research company, Allenbridge. In February 2011 as operations and IT Director, he transferred to Close Brothers Asset Management when they acquired the retail arm of Allenbridge and was made head of client services – self-directed. Wayne joined the Quilter Cheviot Managed Portfolio Service team in February 2013.

This financial promotion has been approved and issued by Quilter Cheviot. Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future returns. You may not recover what you invest. This document is for general information purposes only, is subject to change and should not be relied upon. Unauthorised dissemination or copying is prohibited.

Prosser Knowles Associates Limited is Authorised & Regulated by The Financial Conduct Authority.

Quilter Cheviot and Quilter Cheviot Investment Management are trading names of Quilter Cheviot Limited. Quilter Cheviot Limited is registered in England with number 01923571, registered office at One Kingsway, London WC2B 6AN. Quilter Cheviot Limited is a member of the London Stock Exchange, authorised and regulated by the UK Financial Conduct Authority, regulated under the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission for the conduct of investment business and funds services business in Jersey and by the Guernsey Financial Services Commission under the Protection of Investors (Bailiwick of Guernsey) Law 1987 to carry on investment business in the Bailiwick of Guernsey. Accordingly, in some respects the regulatory system that applies will be different from that of the United Kingdom.