August 23rd, 2023
Prosser Knowles managed portfolio service (MPS) August update
July was a rewarding month for investors of all risk profiles, as equities, UK bonds and commercial property posted positive returns. Markets were cheered by reassuring inflation data, where consumer prices rose less than expected in June.
This was the first positive surprise on the UK inflation front for some time, with the rate remaining stubbornly high and repeatedly exceeding forecasts in recent months. With core inflation also coming in lower than expected, the news led to a rally in UK assets, especially those particularly sensitive to interest rate changes such as government bonds and commercial property, as terminal rate expectations were revised.
US stocks also rose, with the rate of inflation falling more than expected and economic data remaining robust across the pond. Elsewhere, some of the most notable upticks in performance were seen across recent laggards, namely global small cap stocks, emerging markets (especially Chinese equities), while ‘value stocks’ also enjoyed something of a resurgence.
How did the MPS strategies perform in July?
The managed portfolio service (MPS) strategies delivered a positive return of between 1.5% and 2% in July, with returns driven by a multitude of factors across the strategies.
The higher risk strategies benefited from their larger exposure to emerging markets, Asia ex Japan and the US (with the UK stock market also delivering a return of over 2%), although the pound was once again quite strong against other currencies, reducing the return from international stocks for sterling investors.
At the lower end of the risk spectrum, bonds delivered positive (albeit more muted) returns, with the gilt market up just under 1%, with shorter-dated gilts outperforming their longer-dated counterparts. As mentioned, another area that performed well was UK commercial property, with several holdings within the Alternative Assets fund rising by over 5%, boosting returns across the board.
Stock changes over the month
We made no changes to the strategies’ headline asset allocations during the month but did implement several ideas at the stock selection level within the Building Block funds.
In the UK we exited our residual position in Taylor Wimpey and added to RELX, a move that further increases the defensiveness of the strategies’ equity exposure: a theme that we’ve discussed in recent months.
Within the European equity allocation, we reintroduced Adidas, a position that we sold last year. At the time we highlighted that while we retained conviction in the continued attraction of the global sportswear opportunity, we had concerns regarding the corporate strategy at Adidas. Since then, the appointment of a respected new CEO coupled with a growing interest in the company’s suite of products leads us to see an interesting turnaround opportunity at the company, and the potential for sales and margins to surprise on the upside.
In the US we adjusted our semiconductors exposure, taking profits on the holding in AMD and using the proceeds to re-initiate a modest position in Nvidia which, given recent strength, has now become a meaningful index position. As discussed last month, we remain wary of chasing the Generative AI theme too aggressively, retaining a broadly neutral allocation to Information Technology while ensuring a sufficiently diversified allocation across our key conviction ideas within the sector.
Lastly, we initiated a position in Equinix, the largest publicly listed data centre company which operates centres worldwide. We view Equinix as a high-quality operator in this space and see the stock as an attractive means of gaining exposure to a long-term growth market: one underpinned by an increasing array of data demands from streaming content, cloud computing and 5G networks through to AI spending.
You can find out more about our MPS strategies, and how we executed them this July, on our YouTube channel.
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This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.