After the sharp market gains in July and August, September was more muted for global equities. US and European markets enjoyed periods of strength but ended the month flat to lower; global equities made modest gains, but this was largely driven by Asia and emerging markets. UK equities continued to gain, but this is largely driven by the weakness of the Pound rather than a “vote of confidence” in UK plc: FTSE 100 companies derive around 80% of their profits overseas, so a fall in Sterling simply translates to higher profits in overseas currencies, when measured in Sterling. And Sterling has continued to fall – modestly during September, more precipitately in early October as investors consider the implications of a “Hard” BREXIT.
Government bonds saw a turnaround into losses in September, after a period of extraordinary gains since June. Ten-year gilt yields rose from 0.64% to 0.75% in the month, and the gilt index as a whole lost over 2% in September. This partly reflects global factors, the fading of oil-related deflation and growing expectations that central banks are changing policy course: US ten-year Treasury yields rose fractionally too, from 1.57% to 1.61%. The 7IM Personal Injury Fund retains exposure to US Treasuries, which still offer
some return potential in a “risk off” market correction, but is very underweight UK gilts and corporate bonds, so is well-placed toweather a sell-off in longer maturity Sterling bonds. Pleasingly, market pricing of long-term inflation (to which 7IM’s portfolios have direct exposure) continued to grind higher.