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Core Investment Committee update

The Investment Committee in charge of our Core portfolios met today to review recent market events. December was another positive month for both equity and bond markets, as the rally that began in November continued into year end, turning what had been a volatile year with little market direction into a solid one in terms of performance. Pleasingly, not only was performance from all of the portfolios positive, but they all beat the return available across the year from cash (the details of which I will be covering in a separate post in the coming days).

Within equities, Europe and US were the strongest regions in Q4 (and indeed the year). However, we were able to find performance elsewhere by being highly selective geographically, enjoying strong returns from our Brazil and Korea holdings, even as Emerging Markets were more mixed generally. When looked at by sector, industrials and materials were the strongest performers in December, whilst IT was still the strongest across Q4 as a whole (and, indeed, the year). Within Fixed Interest, all areas performed well, with UK Gilts and Corporate Bonds doing especially well, along with Emerging Market Debt.

In an overwhelmingly positive period, the one area that continued to disappoint was China. We understand why investor sentiment towards the country is poor, with concerns about debt levels and growth prospects, but we have remained attracted to the very cheap valuations of Chinese companies, many of whom are performing well. That notwithstanding, the lack of response from the government to continued poor economic data, alongside Xi Jinping showing further willingness to interfere in markets by applying political dogma when making regulatory decisions, are causes for concern. As a result, this is one of our areas of greatest discussion, and whilst we have not made any decision to cut our exposure, we have it under very close watch.

Other areas discussed were whether or not to reduce overall duration on our bonds, as the yield curve has become even more inverted in the last couple of months, and whether we should take some profits from a few holdings that have performed especially well, particularly Franklin FTSE Brazil ETF. For now, we decided against making these changes, but will continue to review.

One decision that was made was that we will continue hold Premier Miton US Opportunities. We had been concerned that, whilst it is well positioned for our core case of the US economy avoiding a recession, its bias towards mid- and small-cap companies will cause it to struggle if we are proven wrong. However, after reviewing our US exposure as a whole, and considering the recent economic data that strengthens our conviction in our core case, we have decided to hold on to it.

Should you wish to discuss anything in this note, or about our portfolios in general, please feel free to contact me on 020 3697 8902 or andrew.shaw@phoenix-wm.co.uk.

Andrew Shaw, Chief Investment Officer

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