Figures from , or ARC, found that the onset of UK elections – scheduled for 4 July and taking some observers by surprise – shows that investors aren’t particularly nervous. And investors do not appear to be unduly worried by politics more broadly.
Figures from ARC last week showed that the average return of the ARC Sterling Steady Growth Index for May is estimated to rise by 1.9 per cent. (This estimation is based on the most common risk profile run by discretionary investment managers.) That translates into average year-to-date performance of 4.7 per cent and a 12-month performance of 10.6 per cent.
“Results for the year to date are broadly better than they may have expected, and sentiment continues to be positive. Entering 2024, general anxiety centred on the likely depth of the anticipated US recession,” Paul Kearney (pictured), managing director of ARC, said. “Economic slowdown seems to have been averted and there remains significant liquidity in financial markets, notwithstanding that this is diminishing as QE is reversed. However, the massive US stimulus driven by the US Inflation Reduction Act is possibly a counterbalance to the impact of quantitative tightening.”
“The febrile geopolitical environment is not at the front of managers’ minds. The focus remains on macroeconomic factors and the resilience of underlying corporate profits,” Kearney said.
ARC said equity sector positioning was an important task to get right, because technology outperformed as a sector, while property, energy and oil stocks all lagged.
The performance of fixed-income investments was mixed, with flat-to-modest positive figures muting the returns of cautious mandates, ARC said. US dollar investors benefited from a currency tailwind.
Source: ARC
“Speaking with investment managers in recent weeks the dominant factor shaping their current thoughts is the impact of premature euphoria on the Fed ‘pivot’,” ARC said. “Stubborn service sector inflation has jolted the expected smooth downward trajectory of inflation in the US.”
In the group’s view, the central case is that most managers anticipate two US Federal Reserve rate cuts in 2024; they didn’t expect an adjustment at the Federal Open Markets Committee (FOMC) meeting yesterday or today.
“Whilst falling interest rates more generally support a positive view on equities, wealth managers are also focused on a defensive approach to portfolio construction and maintain a value-oriented mindset focusing on high-quality businesses with resilient consumers,” ARC said.
ARC’s Indices compare performance data from all of the contributing firms taking account of the risk of the portfolios and comparing the net of fee outcomes received by investors. Indices collect performance of more than 350,000 investment portfolios, net of fees, supplied by more than 140 investment managers to establish the actual returns being seen by clients. Managers include Barclays Wealth, Brewin Dolphin, Investec, Rathbones and UBS.
This news service interviewed ARC back in October 2022 about its approach and the importance of such figures for wealth managers handling tasks such as preparing for the UK’s new Consumer Duty regime (now in force).