Published: July 1, 2019

Relevant Strategies

• Moderate
• Balanced (and International Balanced)
• Growth
• Aggressive Growth (and International Growth)
• Gold & Precious Metals
• Natural Resources

Our Commentary

Positive returns were seen across all asset classes in the second quarter of 2019 even though the outlook for global growth weakened again.

Equities

In equity markets, the US and Europe provided some of the strongest returns as the central banks in both regions indicated that interest rates were likely to fall in the short term. As a result, bonds and gold also performed well. In currencies, the pound was weaker against all the major competitors with falls of between 2% and 5% against the dollar, euro and yen.

The FTSE 100 rose 2.8% on a total return basis with the more domestic FTSE 250 up 2.3%. Gains for UK investors in overseas markets were augmented by weakness in sterling.

In sterling terms, the broad US S&P 500 Index made a total return of 6.3% ahead of the technology focused NASDAQ which rose by 5.9%. The MSCI Europe Index made the best gains, up 8.2%, helped by comments from the European Central Bank.

Returns in emerging markets were lower, reflecting some concerns of a slowdown. The MSCI Emerging Markets Index returned 2.8%. In Japan, the Nikkei 225 gained 5.5%.

Fixed Income

Bonds benefited across the board from declining interest rate expectations. Gilts made a total return of 1.8% with Index Linked Gilts up 2.0%. As risk appetite returned, corporate bonds performed even better, gaining 2.4% over the quarter with High Yield bonds up 2.2%.

Commodities

Gold was the greatest beneficiary from the less aggressive stance of the central banks. Lower interest rates highlighted the attraction of gold as a non yielding alternative to cash and a store of value. The precious metal added an impressive 12.7% in sterling terms with certain investors speculating that it is set to break out into a new trading range. The absolute return sector made a total return of 1.1%, adding to gains from the first quarter.

Portfolio Actions

We have reached an interesting juncture with an apparent contradiction in capital markets. Whilst further falls in bond yields suggest recession on the horizon, this is not shared by the strength in equity markets.

The fact that interest rates now appear to have peaked is perhaps an admission that we are close to the end of the economic cycle. It is therefore surprising that equity markets have been so buoyant. Despite the best endeavors of central banks, equity markets are unlikely to be supported forever should the economic cycle turn down.

Diversification across asset classes and regions with a sensible amount of liquidity set aside for future opportunities remains a sensible approach at the current time.

Regards,

Euro Pacific Advisors Management Team

Published: April 4, 2019

Relevant Strategies

• Moderate
• Balanced (and International Balanced)
• Growth
• Aggressive Growth (and International Growth)
• Gold & Precious Metals
• Natural Resources

Our Commentary

Equities

Despite weakening projections for global GDP growth and earnings, equity markets performed strongly in the first quarter of 2019.

Some of the best performance was seen in the US, particularly in technology shares which bounced back after a difficult end to 2018. The improvement in confidence was largely down to two key factors. Firstly, investors grew more hopeful that the US and China would be able to resolve their trade dispute amicably. Secondly, the US Federal Reserve scaled back its outlook for interest rate increases. The previous forecast of two interest rate increases this year was cut to zero with one now seen in 2020.

The UK equity market performed well and the FTSE 250, with a bias toward the domestic economy, gained 9.8%. Sterling strengthened against the other major currencies as investors reassessed their downbeat forecasts in respect of Brexit.

The diversified S&P 500 in the US made a total return of 13.7% in USD terms, MSCI Europe gave a Euro total return of 12.7% and FTSE Emerging Markets added 10.4%.

In the emerging markets, growth and value factors outperformed defensive sectors and the infrastructure exposure lagged. In Asia, Japan was the most disappointing market as the economy was hit by trade tensions with China. The Nikkei 225 made a gain of 6.9%.

Bonds

Bond markets also produced good returns for investors, gaining across the board in response to the Federal Reserve’s latest forecasts.

Corporate bonds gained 3.9% with strategic bonds up 3.7%. Despite little evidence of inflationary pressures, index linked gilts made a total return of 6.1% while the high-yield sector rose by 5.1%.

Commodities

Gold was broadly unchanged. Falling bond yields tend to enhance the attraction of gold, which yields nothing, as an alternative asset. The dull performance reflects the fact that investors were more confident in risky assets such as equities and saw little reason to chase gold at current levels. The absolute return sector gained 1.5%, helped by improving returns in bonds and equities.

The energy sector rebounded as the oil price made strong gains.

Portfolio Actions

The reversal in both equity and bond prices after the Q4 drop, led by positive performance from US tech, resulted in strong performance for the portfolio exposure to momentum factor strategies while the scramble for yield in an environment of extended low interest rates generated double digit returns for both the global property exposure and the UK REIT exposure.

We added exposure to REITs, operating in the booming industrial/logistics, sub-sector and trading on a large discount to NAV.

We are considering exposure to an airline company with heavily depressed profits but still benefiting from a valuable expansion into resorts and cruises. Valuation indicators indicate 29% upside.

Any positive resolution of Brexit and the trade war between the US and China would clearly be well received by the markets as they would likely result in an increase in economic activity in the short run. However, given the late stage in the economic cycle and the fact that equities have already come a long way in a short period of time, a certain amount of caution is warranted.

Diversification across a broad range of asset classes and regions remains a sensible approach for the long run.

Regards,

Euro Pacific Advisors Management Team

Published: August 8, 2019

Relevant Strategies

• Gold & Precious Metals
• Natural Resources
• Growth
• Aggressive Growth (and International Growth)

Commentary

Having reached its highest level for six years, the gold price looks set to move higher buoyed by the outlook of further US rate cuts, and the escalating trade war between the US and China. China’s central bank added a further 10 tonnes to its reserves in July while Russia and Kazahstan have also been consistent buyers.

Conversely, the latest US threats have dampened demand for other metals with copper weakening and iron ore down 18% in recent days. The oil price has also weakened and the natural resources fund has made little overall progress this year post January’s 8% gain.

The Gold & Precious Metals strategy was up by 13% in June alone and has been making further strong progress in recent days.

Goldman Sachs has upped its gold forecast 12 months out to $1,600 and should this occur, the precious metal ETCs and exposure to mining stocks in the portfolios should continue to make significant progress.

Portfolio Actions

Gold has recently breached $1,500, recording its largest daily rise in three years. After years of underperformance, we see no need to top slice for now and are riding the momentum until sentiment regarding interest rates turns more hawkish.

Euro Pacific Advisors is comfortable with the level of precious metals exposure in the four strategies above and will consider re-balancing them at a later date.

Regards,

Euro Pacific Advisors Management Team

Published: January 10, 2019

Market Overview

Equity markets struggled in the final quarter of 2018.

Concerns mounted over equity valuations amid continuing uncertainty over a trade war between the US and China.

The US Federal Reserve raised interest rates for a fourth time for the year in December. However, expectations for further increases were cut slightly with two further hikes now expected in 2019 from three which were previously indicated. Even so, other central banks are gradually following the lead of the US as Quantitative Easing has reached its practical limits.

The pound was weaker against the other major currencies, including the dollar, euro and yen, due to fears over Theresa May’s Brexit deal.

Economic data indicate that growth is faltering.

The strongest data have been in the US, although there have been some signs of slowing momentum in leading indicators such as industrial production and durable goods orders. The outlook in the UK, Europe and Japan remains insipid whilst growth in China continues to moderate from a relatively high level.

Overall, 2018 was the weakest year for financial markets since 2008…

And most asset classes ended the year significantly lower. The optimism moving into 2018 fell away quickly and double digit falls would have been commonplace for multi-asset strategies generally were it not for the strong performance over the summer from US equities (especially tech) boosted by the impact of tax reforms.

Mindful of already rich valuations, our Core Portfolio Components missed out somewhat having not been heavily weighted to the US, while tactical opportunities in European equities opened in the Tactical Portfolio Components have been adversely impacted by the on-going US/China trade rhetoric. Other Tactical activity has produced positive returns, but this has been insufficient to overall outperform.

Despite significant weakness in the equity markets over the final quarter, it is important to bear in mind that global GDP growth of 3% is still expected this year.

This only marks a small fall from the 3.2% which was achieved in 2017 and is also likely to be the final outcome for 2018. Many commentators are forecasting sentiment to reverse and we will be positioned to benefit strongly from any green shoots in the UK and Europe in 2019.

Equities

The US equity market suffered a ‘fall from grace’ as investors showed concern over the valuation of technology stocks in particular. On a total return basis in sterling terms, the NASDAQ crashed by 15.2%. The broad based S&P 500 declined by 12.2%.

Other developed markets fared little better with the Nikkei 225 down 12.4%, the FTSE100 down 9.7% and the MSCI Europe Index off by 10.5%.

In a sad indictment of the quarter, the best performing sector was Emerging Markets which declined by 5.1%.

Fixed Income

Bonds benefited from a modest scaling back of expectations for interest rate hikes. Index linked gilts made a total return of 2.1%. Conventional gilts were close behind at 2.0%. The high yield sector fell by 4.1% as investors began to demonstrate some concern over lower quality issues. Corporate bonds and strategic bonds were little changed, down 0.4% and 1.2% respectively.

Gold

Gold advanced by 10% in sterling terms benefiting from uncertainty in equity markets.

Regards,

Euro Pacific Advisors Management Team

Published: January 3, 2019

Despite the recent sell off in the US, we continue to maintain our US exposure where we feel business will continue to be supported by deregulation, tax cuts and a pro-business tax reform.

The US has managed to shrug off a series of external shocks, political risks and enjoyed its fastest growth since 2005.

With confidence high, consumption and business investment have grown solidly despite a further correction in interest-sensitive residential investment.

Regards,

Euro Pacific Advisors Management Team

Market Overview

The continued escalation of trade tensions between the US and China led to a further flight to the relative safety of the US dollar and depressed asset prices throughout the rest of the world. This was most apparent in declines of overseas currencies and investors punished those where there are large current account deficits and a reliance on overseas sources of funding. Investment returns have been mixed and the dispersion of returns in the second quarter an ongoing theme.

Europe has confirmed that it will end its Quantitative Easing program by the end of the year, although interest rates are not likely to climb until next year. UK interest rates were increased to 0.75%, the first hike of 2018, but no further move is expected until after Brexit. There are no signs that Japan is ready to end its Quantitative Easing program and it recently expanded the range of equities eligible for purchase.

Economic data have been mixed. The US has continued to outperform other regions. Whilst growth picked up in the UK and Japan, there remain some doubts about its sustainability in these countries. Leading indicators in China point towards lower GDP growth. There remains a risk of US tariffs rising to 25% on the full range of US – Chinese imports with the most pessimistic forecasts suggesting a 15% yuan devaluation and China’s current account going into deficit. Meanwhile in Europe, the economy remains relatively solid, although political issues still linger.

Equities

The US equity markets outperformed again. This came despite the US Federal Reserve raising interest rates again and the market is now becoming more confident in their outlook for higher rates over the next year.

UK markets posted negative total returns over the quarter and the FTSE 100 lost -0.7% with the more domestic based FTSE 250 down -1.8%. The US made the best overall returns in global equity markets, the S&P 500 making a total return of +8.9% when converted to sterling. Eurozone indices and broad based emerging market indices were roughly unchanged.

Fixed Income

Government bond markets struggled as investors priced in the prospects for additional rate hikes, particularly in the US. Conventional Gilts made a total return of -2.0% with Index Linked Gilts down -1.4%. The only gains to be had were in High Yield which gained +1.9% and Strategic Bonds up +0.4%. Corporate Bonds were little changed, down -0.2%.

Gold

Gold fell by -4.4% in dollar terms over the quarter. The precious metal tends to struggle in an environment of rising real interest rates, although it remains valuable as a hedge within portfolios.

Regards,

Euro Pacific Advisors Management Team

Market Overview

A robust global economy, fuelled by improving US economic data, led developed markets broadly higher during Q2. Dispersion of returns across equity markets increased and there was weakness in emerging markets where growth prospects have been trimmed. European data has also cooled and political risk there has again come to the fore.

United States

Strength in the US dollar continues to be one of the defining features in markets. The US Federal Reserve increased interest rates by 25 basis points for the second time this year and it remains committed to two further hikes within the calendar year. It has resulted in weakness in other currencies, primarily in emerging markets where underperformance has been widespread, partly as a result of reliance on dollar-denominated debt and ensuing pressures on lending activity.

We expect foreign exchange rates to continue to play an important role in markets in the short term and remain positive on the US dollar, largely because of the progressive stance on monetary policy adopted in the US in comparison to other countries. Conditions do not appear ripe for a recession and an imminent equity bear market looks unlikely. The momentum in US assets looks set to continue for now although valuations, particularly in the technology sector, look expensive. Europe and emerging markets are at an earlier stage in the cycle and could outperform if fears regarding global trade wars and political risk in Europe subside.

Europe

Europe committed to ending its Quantitative Easing policy at the end of 2018, although there remains no clear exit for Japan. In the UK, interest rates continue to rise at a glacial pace; with the disappointing economic backdrop setting back the timetable for rate increases.

Equities

The majority of equity markets are still lower in 2018 with the US market a notable exception.

The US produced the best returns in global equity markets and the tech-heavy NASDAQ made a total return of 7.3%. Returns were more modest elsewhere. UK equity returns were augmented by weakness in the pound against the US dollar which has helped exporters. The oil price rallied sharply as the US stepped back from the Iran nuclear deal, meaning that global supply would be lowered as a result of the renewal of sanctions.

Fixed Income

There was little movement in fixed interest markets over the quarter. The sector remains an important source of income and offers diversification.

Gold

The gold price declined by -5.5% as investors moved into riskier investments such as equities. The Absolute Return sector was unchanged and in the current environment it remains difficult for managers within the sector to add value.

Regards,

Euro Pacific Advisors Management Team

Market Overview

Positive momentum in equity markets continued into the new year but gave way to volatility in February as investors showed increasing concern about inflation. The pound strengthened modestly against the dollar and euro which depressed sterling-denominated returns.

Central banks remain on a tightening path on the grounds of controlling inflation and maintaining financial stability. The US Federal Reserve raised interest rates once and at least two more hikes are expected this year. The Bank of England is likely to follow to a lesser extent and even the European and Japanese central banks have guided to a more restrictive monetary policy, signaling a slowdown in Quantitative easing, if not outright rate increases at this stage.

Equities

Weakness was widespread across global equity markets.

In the US, the broad S&P 500 index declined by 4.4% in sterling terms while the tech-heavy NASDAQ index fell around 7% from its peak in early March.

Emerging Markets fared better with the MSCI index declining by 2.2% but our Core exposure weighted to India (a potential loser from trade tariffs) and infrastructure (susceptible to higher rates) failed to capture the more resilient sectors.

Fixed Income

Fixed interest markets were generally weaker but strong demand from pension funds generated some recovery towards the end of the quarter.

United States

Following the imposition of tariffs by the US on certain trading partners, fears arose about the potential for escalation into a broader trade war.

In the US, the technology sector, which up to now had been leading the market higher, was pressured following concerns over Facebook’s privacy issues. As a result, the high level of Valuations across the sector has been questioned.

Europe

There were several other developments for investors to digest. The Italian election demonstrated that populism in Europe remains strong as the mainstream Democratic party suffered a resounding defeat.

The FTSE 100 made a total return of -7.2% over the quarter. Our Core UK exposure is dominated by exposure to mid-caps and the property sector which held up better, supported by bid activity as companies responded to the value opportunities emerging.

Conclusion

The recent volatility highlights the importance of maintaining a well-diversified spread of assets. Some sectors that were previously trading at a premium to net-asset-value or fair-value, such as infrastructure and asset-backed income, have now seen those premiums eroded and this is likely to throw up attractive opportunities to deploy the cash recently realized over the coming weeks.

Regards,

Euro Pacific Advisors Management Team