1 Issue 22 | April 2019

the tortoise & the hare

| Q1 2019 Economic Overview

Summary

The US economy continues to grow steadily, at a 3% annual growth rate as at the end of 2018, despite easing in the final quarter. Meanwhile, inflation increased by only 1.5%, its smallest increase since 2016. The US Federal Reserve expects to maintain interest rates at 2.5% for the rest of 2019 and even intends to stop quantitative tightening. 10y US treasury bonds currently offer a yield of 2.44%. Over the last three months, the US Dollar strengthened against both the Euro (1.5%) and the Yen (1.3%) but weakened slightly against the British Pound (-2.6%).

In the UK, having passed the original Brexit deadline, for now, things remain the same. Economic growth continues to be positive, at 1.4%, though the growth rate for the last quarter was a meagre 0.2%. The inflation rate dropped below the 2% Bank of England (BoE) target, to 1.9%. Interest rates remained at 0.75% last quarter, and the latest yield on offer for a 10y gilt is 1.01%.

In comparison, the European Central Bank (ECB) maintained a 0% interest rate. German 10y bond yields have dropped back into negative territory. The Eurozone annual GDP growth rate is now at 1.1%, having been dragged down by the German and Italian numbers, where any signs of growth evaporated in the latter half of last year. Inflation is currently not an issue with a 1.4% year over year increase.

Japan continues to grow, but at a rate of just 0.3%. Inflation is just about positive at 0.2%. The Bank of Japan (BoJ) interest has now been kept at -0.1% for 2 years. The BoJ is still buying ETFs and Japanese REITs above and beyond Japanese government bonds.

Seemingly undeterred, China maintained an annual growth rate of 6.4%, however, this is its weakest growth rate in 28 years.

Fixed Income

Fixed income had a strong start to the year. Higher risk market segments like high yield, emerging market debt and even US investment grade credit, each returned more than 6% in Q1. Developed markets government bonds in local currency terms gained 2.33% over these 3 months, or 1.74% in US Dollar.

Equities

Equity markets globally performed well, with USD based returns for the MSCI ACWI index reaching 12.18% for Q1. For the same period, returns in US equities were around 13.6%, while prices in emerging markets increased by 9.9%, and the rest of the developed equity markets by approximately 10.4%. Currency returns had very little impact last quarter.

2 Issue 22 | April 2019

Q1 2019 Economic Overview

Value stocks performed slightly worse than the respective broad markets in all 3 regions. In the US, investors made about 11.9%, in developed markets ex US 8.5% and in emerging markets 7.8%. US small cap stocks on the other hand beat the S&P 500 returns with an increase of 14.6%. In the rest of the developed markets, returns were in line for small cap, and in emerging markets small cap returned only ~7.8%.

Real Assets and Total Return

Oil prices made a comeback in Q1, shooting up c.30% and pulling the broad Bloomberg Commodity index up 6.3%. Gold prices registered just a small increase of 1.3%. Global REITs performed broadly in line with equity markets, returning 14.4% for the quarter.

The Credit Suisse Managed Futures Liquid index lost 3.3% from the start of the year, having recovered 2.2% in March after a bad month in January, when returns suffered from short term price reversals in both currencies and equities. The SG Multi Alternative Risk Premia index is up c.2.8% for the year and our fixed income total return fund added about 1.9% in the first quarter.

Sources:

Morningstar for index data, FT.com for foreign exchange and yield data, Yahoo Finance for VIX data, Trading Economics for economic data, all as of 31st March 2019

3 Issue 22 | April 2019

Q1 2019 Economic Overview

Quarterly Indicators

* % of GDP 2018 estimate** change on 1 year ago

Source: Trading Economics (31st March 2019) Source: Trading Economics (31st March 2019)

Source: Trading Economics (31st March 2019)Source: FT.com (31st March 2019)

* Quarter % Change from 31/12/2018 to 31/12/2019** YTD % Change from 31/12/2018 to 31/03/2019

Source: Morningstar (31st March 2019)

Source: Yahoo Finance (31st March 2019)

4 Issue 22 | April 2019

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