September was again dominated by will-they/won’t they speculation around the US Federal Reserve raising rates at their meeting during the month, although fears over Deutsche Bank’s viability and an OPEC agreed production cut were also significant events.
Meanwhile, PortfolioMetrix’s model portfolios’ relative performance was again strong over the month, with the 10 balanced funds they regularly track up on average 0.3% over the month with the highest performing up 1.0% and the weakest down 0.5%.
Overall, Core Active 6 outperformed 9 of these 10 competitors.
Market volatility was a feature up to the Federal Open Market Committee’s meeting over the 20thand 21st of September with speculation ebbing and flowing over whether rates would be raised. In the end, rates were left unchanged at 0.25%-0.5% although there were indications that most members appeared to anticipate a rate rise before the end of the year, most likely in December.
UK rates too remained on hold at 0.25% as expected, although here, unlike in the US, the direction of future travel is more likely to be lower rather than higher. Brexit deliberations and debate continues to rumble on with Japan’s Foreign Ministry publishing a report in September warning that the UK’s exit from Europe could motivate Japanese companies to shift their UK-based European head offices out of the UK and into Continental Europe if access to labour and custom free supply chains aren’t adequately protected in the final settlement. It’s important to note UK news flow for corporates in the UK was by no means universally cautious or negative. Apple announced it would situate its new London headquarters at the redeveloped Battersea Power Station in a major coup for the project’s developers (http://www.standard.co.uk/news/london/revealed-apple-to-create-stunning-new-hq-at-battersea-power-station-a3356201.html ).
The Bank of Japan also tweaked its stimulus package during September. Whilst it kept rates on hold at -0.1%, it announced a cap on ten-year Japanese Government Bond yields of zero percent and announced it intends to target inflation in excess of 2% a year.
Fears over Deutsche Bank’s financial health spiked during the month as it emerged that the US Justice Department had fined the bank $14bn in relation to the mis-selling of residential mortgage-backed securities, an amount almost as much as the German Bank’s market cap. Whilst it’s unlikely the bank will end up settling for anywhere near this amount, concerns around the impact on its capital reserves drove down its share price over 20% over the month and had a knock on effect on other European and global banks.
The other major news at the end of the month was that the oil cartel OPEC (Organisation of the Petroleum Exporting Countries) had unexpectedly released a preliminary agreement to reduce output, causing oil prices to surge. The oil price boost was a boon for both energy and mining sectors, two large weightings in the FTSE 100, leading to a bit of a rally in the blue chip index.
The pound fell against most other currencies in September, down 0.8% against the US dollar, 1.7% against the Euro and 2.9% against the yen. It was also down 0.4% against the Brazilian real and a whopping 7.3% against the South African rand as the rand more than recovered after last month’s political jitters.
Risk asset class performance was again solid over September. Commodities were the strongest performer after OPEC seemed to come to an agreement to cut oil production. Developed Asia and EM Equities were also strong performers, particularly on the back of a weakening pound which boosted the performance of non-sterling assets.
Global bond yields continued to rise modestly which caused global interest rate sensitive asset classes such as government bonds, corporate bonds and global property to struggle.
Performance was again strong over the month, although a falling again pound flattered sterling performance somewhat.
Core Active and Absolute Oriented performance was essentially identical over the month.