Marlborough MPS update and Outlook Q1 2024

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[00:00:00] Danny Knight: Good morning and thank you to everyone for taking the time to join us today for what is the very first Marlborough Managed Portfolio Service webinar. These webinars will be a regular feature every quarter ongoing.

[00:00:15] Danny Knight: I'm Danny Knight, Commercial Director at Marlborough. Marlborough has earned a reputation as the home of small cap investing.

[00:00:22] Danny Knight: However, our multi-asset capability is equally as strong and I'm delighted today to be joined by Nathan Sweeney, who's our Chief Investment Officer of Multi-Asset, and Raj Manon, Head of Investment for Multi-Asset. Both individuals were included in the latest CityWire Wealth Manager's Top 100.

[00:00:45] Danny Knight: Today's agenda will cover three key areas. We'll look back at markets over the last quarter to understand the returns and also the drivers of this as well as provide an update on how our portfolios fared during this period. We'll talk you through the latest news on the macroeconomy and also some of the key questions on people's minds.

[00:01:05] Danny Knight: Given the rally we've seen in markets, is it sustainable and what might lay ahead. Each quarter, we will focus on a few key themes and focus our efforts and charts on these.

[00:01:16] Danny Knight: Finally, understanding our market and macro outlook, we'll discuss our current portfolio positioning to navigate this. Please do take the opportunity during today's webinar to pose questions to us via the Zoom chat.

[00:01:30] Danny Knight: As this is our first MPS webinar, I wanted to remind you that our MPS has three variants, a fully active range, using active instruments primarily.

[00:01:39] Danny Knight: A blended range that dynamically, and with the team's discretion, blends active and passive instruments, not blindly putting active and passage together in a 50 50 approach.

[00:01:49] Danny Knight: And finally, a range that primarily uses passive instruments. However, all ranges are actively managed and benefit from our proprietary strategic allocation, as well as our tactical views, which we'll hear more about later today.

[00:02:05] Danny Knight: Let's move on to our review of markets. Nathan, can you give our view on quarter one?

[00:02:11] Nathan Sweeney: Yeah thank you Danny, for the introduction and thank you all for joining the call today.

[00:02:16] Nathan Sweeney: So I think the first thing to really highlight on this slide is clearly that last year was an exceptional year for markets. So we had pretty good returns across the board last year and for the first quarter of this year, we're seeing a continuation of that theme across markets.

[00:02:34] Nathan Sweeney: So there's a couple of things that I wanted to specifically highlight on this chart. Firstly, I think it's worth mentioning China. Because if we look at performance last year, it was pretty poor. And what we're seeing is a stabilisation within the Chinese market, and that's because you're starting to see a bit of a stabilisation in the property market.

[00:02:53] Nathan Sweeney: And you're also seeing lots of additional stimulus measures coming through from the government in China, which is leading to a stabilisation in the market. So even though the performance is slightly negative year to date, we can see that the performance is much improved.

[00:03:11] Nathan Sweeney: The other thing worth mentioning is global government bonds. So last year was slightly negative, and again, we've had a slightly negative start to this year.

[00:03:21] Nathan Sweeney: So what's really happening there is we're getting a recalibration by investors when thinking about when do we get that first interest rate cut. So we've seen interest rate cuts being pushed out a little bit and that's leading to a little bit of a softness in performance for government bonds.

[00:03:39] Nathan Sweeney: But the one thing I was going to mention on the equity side from a positive perspective is Japanese equities, because this is one of the overweights we have in the portfolio, and you can see that we have continued strong performance in the Japanese market. And we'll talk a little bit about why we like that market later in the presentation.

[00:04:01] Danny Knight: Thank you, Nathan.

[00:04:02] Danny Knight: If we look at our performance over the last quarter, all three ranges delivered really strong performance and also they have done that since inception. For those of you who want to look at our performance in greater detail, please do request access via FE Analytics where our portfolios are loaded and available.

[00:04:22] Danny Knight: Some of you might have seen a chart like this before, but I think it's really important if we look at the risk and return characteristics since launch of the portfolios, and what we're seeing here is both the return, and the standard deviation, the volatility since portfolios were launched on a realised basis.

[00:04:38] Danny Knight: So actually what clients experienced and whilst it might sound obvious, what's really pleasing for us is to see that efficient frontier.

[00:04:46] Danny Knight: The more risk you take, the more return clients are getting. This is not the case when look more broadly across our industry.

[00:04:53] Danny Knight: Raj, we've established that quarter one was a strong period for markets, a strong period, pleasingly for all three MPS ranges, and firstly, congratulations to you and the team for that.

[00:05:03] Danny Knight: Can you lift the lid, please, and give some insight to the drivers? Also, some of the tiny detractors during the period and to be clear here, we are focusing on the middle risk portfolio. So level five of the blended range.

[00:05:16] Raj Manon: Thank you, Danny, and good morning, everyone, as Danny mentioned, we're focusing on level five of the blended range, but the key messages follow through to the other portfolios as well.

[00:05:27] Raj Manon: So we start with an attribution slide, so this takes into account the weighting of every asset in the portfolio, and it also takes into account any changes to those weightings over the period.

[00:05:39] Raj Manon: So starting at the right hand side of the screen, We've seen the, we see the performance of the main asset classes.

[00:05:46] Raj Manon: So, it was a fantastic period for equities, equities adding 5.06% to portfolio returns. Fixed income added 0.13% to portfolio returns and money markets adding 0.03% to portfolio returns.

[00:06:03] Raj Manon: On the left-hand side of the screen, firstly focusing on equities, which is at the top. It was a quarter where all equity regions contributed positively to the portfolio, which is really pleasing to see.

[00:06:16] Raj Manon: In particular, I'll highlight US equities, which added 3.35% to the portfolio, US being the largest equity allocation in the portfolio and also performing incredibly well, a double digit return of 10.3% for the quarter, as Nathan mentioned, Japan is an overweight position in our portfolios and Japan performed incredibly well over the period. It was actually the best performing markets over the quarter, as you should saw on that earlier slide.

[00:06:50] Raj Manon: Now turn to the bottom of the screen, the bond element, I'll highlight government bonds as they were a detractor over the quarter, only modest, but still a detractor.

[00:07:00] Raj Manon: So, from UK gilts, a 0.11% detraction and global government bonds 0.03% and as Nathan mentioned, that was all about the recalibration, that changing expectations from the start of the year where we came into the year with the market expecting, to see significantly more rate cuts than we do now.

[00:07:22] Raj Manon: The US, for example, was expecting around seven or eight rate cuts, but where we stand today, the expectation is we'll see maybe more like two or three.

[00:07:34] Raj Manon: And then the next slide, we show here the top five and bottom five asset contributions, so three of the top five are actually US equity funds.

[00:07:45] Raj Manon: So, the HSBC American Index Fund, the Fidelity Index US Fund and also the T. Rowe Price US Large Cap Value Equity Funds. And that T. Rowe Price Fund highlighting that it wasn't just growth and mega cap tech that were producing returns in the US over the quarter, value stocks also performed quite well with the T. Rowe Price Fund, for example, gaining 9.2% over the quarter.

[00:08:17] Raj Manon: I'll also highlight the two other, funds in the top five, which are M&G Japan and Man GLG Japan Core Alpha, two Japanese equity funds, which both gained over 13.5% over the quarter.

[00:08:35] Raj Manon: Then if we move to the next slide, I'll show the fund activity , so a number of changes over the quarter, I'll just focus first on the change in the US , so we sold out of the L&G Global Technology Index Fund following a fantastic period of returns, that fund up almost 14% over the quarter and we increased our exposure to T. Rowe Price US Large Cap Value Equity.

[00:09:04] Raj Manon: So, we still like technology as a sector, and we still think technology stocks will continue to perform well. But following that strong period of returns, we've decided to take some profits. And also considering that almost a third of the S&P 500 is in technology stocks, we think that makes sense at this point in time.

[00:09:25] Raj Manon: So, we've decided to allocate to areas of the market which are more attractively valued, so to highlight that valuation difference, the T. Rowe Price Fund is trading on a forward PE of 16x, and that's relative to the S&P 500, which is trading on a PE of 21x.

[00:09:45] Raj Manon: I'll also highlight, the change we made in emerging markets. So, we sold out the of the FSSA Global Emerging Markets Focus Fund and increased our allocation to the Baillie Gifford Emerging Market Leaders Fund and the JPM Emerging Markets Income Fund.

[00:10:03] Raj Manon: The reason for that change is that the performance from the FSSA fund had become, become quite inconsistent, and we now have a much higher level of conviction in our remaining two Emerging Markets Funds.

[00:10:17] Raj Manon: We've therefore decided to focus on our best ideas and just have our allocation in those two funds, so I'll now hand over to Nathan, who will give us a market outlook.

[00:10:29] Nathan Sweeney: Okay thank you very much, Raj. So from a market perspective, I think, there's quite a lot to talk about, and you know, the way we put this together is, we generally get questions from clients during the quarter, we try to think, okay, what are the key things that clients are concerned about?

[00:10:44] Nathan Sweeney: So the first question a lot of people are talking about is, you know, when will central banks cut interest rates? So, are we waiting for landing clearance for central banks and what next? And we've also seen markets hitting all-time highs.

[00:11:00] Nathan Sweeney: So, we've seen all-time highs in the US we've seen all-time highs in the Japanese stock market. We do have some investors a little bit concerned about the fact that we're potentially in a stock market bubble.

[00:11:11] Nathan Sweeney: So that's one question I'm going to address because, from our perspective, I think there's a couple of key things you should be looking at to determine whether that's right or wrong.

[00:11:23] Nathan Sweeney: And then lastly, there's a lot of talk about AI and the AI boom we're having, so there's a frenzy in some stocks and will that lead to a pick-up in productivity growth. And that's the key question. So, I'm going to talk about that too, then we'll close out with a little bit of a market update.

[00:11:39] Nathan Sweeney: So firstly, onto the question of interest rate cuts. So, when do we expect them to happen?

[00:11:45] Nathan Sweeney: Now, if we just scale back a little bit coming into this year, everybody was expecting the US Central Bank to get landing clearance, to become the first major central bank to cut interest rates.

[00:11:57] Nathan Sweeney: However, because of the exceptional economic performance in the US they are being held in this holding pattern and they haven't begun to cut interest rates yet.

[00:12:08] Nathan Sweeney: Although if we look at the Bank of England and the European Central Bank, they actually might be in a position to cut interest rates before the US, so this slide helps to actually demonstrate that.

[00:12:21] Nathan Sweeney: So, what we've got here is we have US growth and growth for Europe and the UK we've got inflation data and then when we expect to see those first interest rate cuts.

[00:12:33] Nathan Sweeney: Now, the interesting thing for me is if we look at US growth specifically, it is a lot higher than those other two regions. So, US growth at 3.4% and it's showing no sign of a material slowdown compared to the flat growth you're seeing in Europe and the slightly negative growth you're seeing in the UK.

[00:12:52] Nathan Sweeney: Now if we look at inflation, you could say those figures look broadly similar, but actually when you take a step back, you can see that there's something slightly different happening. So, what do I mean by that?

[00:13:03] Nathan Sweeney: If we look at inflation in the US and we look at inflation from the midpoint of last year, inflation in the US in June 2023 was 3% and it's now 3.5%. So, inflation has actually gone up in the US over the last, three quarters of a year.

[00:13:23] Nathan Sweeney: Now if we look at the UK and Europe, we're seeing something slightly different because European inflation in June of last year was 5.5% and it's come down to 2.4%.

[00:13:35] Nathan Sweeney: And if we look at inflation in the UK last year. In June, it was 7.9%. And it's come down to 3.4%. So, the key point there is that you're seeing progress on inflation in Europe and the UK, whereas we're seeing a re-acceleration in the US because of the strength of the economy.

[00:13:54] Nathan Sweeney: So, because you're seeing that growth in the economy, you're seeing demand for jobs, you're seeing good pay coming through, that's equalling consumer spending, which is leading to that uptick in inflation.

[00:14:06] Nathan Sweeney: So, what that does is it pushes out that expectation for that initial interest rate cut, which most people were expecting would happen in June. And now there's probably about a 50% chance that we get that first interest rate cut in July, if not even further out.

[00:14:23] Nathan Sweeney: Now, that's a different, story in Europe and the UK where we are actually expecting those interest rate cuts in June, because as I've said, growth is slower, and inflation is falling.

[00:14:34] Nathan Sweeney: So, on the next slide, I think, you know, there are a lot of concerns about the fact that will we see those interest rate cuts, but, you know, we firmly believe it's not a question of if we get rate cuts, it's more of a question of when we get those interest rate cuts.

[00:14:48] Nathan Sweeney: And we do believe that it will happen this year and that you're likely to see a lot of major central banks, so this slide is showing you 11 of the developed world central banks and the expectation that they all begin to cut interest rates in 2024.

[00:15:03] Nathan Sweeney: And also, you get a progression of continued interest rate cuts moving into 2025. Now, the one thing I would say is that they're going to like to implement those rate cuts at a nice gradual pace so not following it up with quick successive rate cuts.

[00:15:20] Nathan Sweeney: On the second question that we were going to talk about for markets is around markets, reaching all-time highs. So, on the next slide, the question we've been getting from clients is are we in a stock market bubble?

[00:15:33] Nathan Sweeney: So, the way I'd like to answer this is by comparing the market back in 1999 or the tech bubble with the market today.

[00:15:41] Nathan Sweeney: So, for us, there's kind of three key things that you would look out for in markets as signs to see if the market is actually in a bubble.

[00:15:50] Nathan Sweeney: So, the first one I'd like to point to is a hot IPO market, so this is initial public offerings, so this is companies basically listing on the market. Now on average, when a company IPOs or lists on its first day of trading, it tends to go up about 25%, but in a market, which is hot, you tend to see that the IPOs and particularly the IPOs or the companies that listed on the first day of trading back in 99, they saw on average a plus 70% one day move. So on the first day they listed those stocks were up on average by 70%.

[00:16:26] Nathan Sweeney: So that's quite a notable uplift because stocks were moving that much, it was encouraging more companies to come to the market. So you were seeing quite a lot of companies coming to the market, so there were two companies on average per day IPO-ing, so 476 for that year.

[00:16:44] Nathan Sweeney: Now, if we compare that to last year, we've seen 54 companies IPO-ing and the average stock market move for those companies on their first day of trading was plus 12%, so it's a very different picture when you compare the two.

[00:17:01] Nathan Sweeney: The second thing we would always watch out for is landmark M&A deals, so this is mergers and acquisitions, so companies merging etc, so you tend to find really big deals happening at the top of the market.

[00:17:15] Nathan Sweeney: Now, if anybody remembers 2002, remember, the merger between AOL and Time Warner, which has gone down in history as easily one of the worst M&A deals of all time, it was $165bn at the time.

[00:17:28] Nathan Sweeney: Now, if we compare that to last year, the biggest deal we had was Broadcom and VMWare. Now we didn't have lots of headlines about big blockbuster deals so that's the other thing you should watch out for, so again, we can't really say that we're seeing signs of bubble territory from that perspective.

[00:17:45] Nathan Sweeney: And then one of the other things we would look out for is valuations, extreme valuations. So, if we take the top 10 companies in the US back in the tech bubble, on average, they were trading on a price to earnings multiple of 52 times, which is extreme.

[00:18:05] Nathan Sweeney: Now today, those top 10 companies are expensive in terms of their valuation at 28 times, but they're not extreme, and I would also caveat that with the point that back in 1999, a lot of those companies weren't making the stellar profits that the companies today are making, and they didn't have the excessive cash on balance sheet that the companies today have, so there is a difference between the two.

[00:18:30] Nathan Sweeney: There's one other thing that I was going to discuss just around bubbles and all-time highs on the next slide, and a lot of people would always say that a double is a sign of a bubble.

[00:18:41] Nathan Sweeney: Now what we have here is the orange line is showing you stock market performance from January 1995 to March 2000, so it's that long bull market run that we had leading up to the tech boom, and you know, over that period the stock market was up 266%, and this is referencing the S&P.

[00:19:04] Nathan Sweeney: Now, if we look at the current bull run, and this is looking at October 2022 to March 2024, we have the market up just around 50%. Now you can actually see that the majority of that 50% is attributed to good company earnings coming through, which is driving that growth. So, all it really highlights is that we're not seeing that excessive price movement, which would lead us to be concerned that we're in a frothy market.

[00:19:36] Nathan Sweeney: Now, the last thing I'm going to say on this slide is that you should expect to see market pullbacks, even within a bull market, and you can see it on the orange slide there, and in any given year, markets tend to pull back 5, 10, 15, even 20% sometimes. But it's quite interesting when you show the slide of intra year market pullbacks, because in the majority of cases, even though you have those pullbacks, markets can still end up in positive territory. So, it's just a natural part of investing and we are actually seeing a little bit of that over the last two days.

[00:20:11] Nathan Sweeney: So, the last thing I was going to talk about, is AI, because a lot of the big tech companies are in the spotlight at the moment because they're investing in artificial intelligence, and the big question is, is this hype?

[00:20:27] Nathan Sweeney: You know, so are these companies actually generating any revenue from investing in AI, etc. so this chart just gives you a little bit of insight into the top 10 companies, and again, just focusing on the US at the moment, because they are leaders in artificial intelligence.

[00:20:44] Nathan Sweeney: And if I look at those top 10 companies on the left-hand side of the slide, you can see the names of the companies, you can see they're weighting within the S&P 500, and then interestingly, you can see the level of sales they have, and this is in billions of pounds.

[00:21:00] Nathan Sweeney: So, as an example, the top company on that list, we have NVIDIA and they delivered sales last year of $24bn, which is quite a staggering number.

[00:21:12] Nathan Sweeney: And what we've seen there is the growth in those sales have gone up by over 239% over the last year, and the earnings for the company have gone up over 400%. So, it is demonstrating that some of the AI potential is actually leading to company earnings because NVIDIA is the company behind the microchips, which helped to process data, so large data sets, which are used in artificial intelligence and so good earnings coming through from them.

[00:21:44] Nathan Sweeney: But a lot of the other tech companies within the US they've been investing in artificial intelligence before artificial intelligence or AI became a buzzword and a lot of those companies are using and have been using artificial intelligence for a long time, whether it's Google maps or whether it's Meta, which is your Facebook using lots of data sets to promote content that they believe you might like.

[00:22:09] Nathan Sweeney: So, it is a large part of what they do and for us, what we want to see is a broadening out in participation. So, are other companies benefiting from that? And the next slide actually gives you a little bit of a longer-term view on how markets performed.

[00:22:26] Nathan Sweeney: So just on the next slide, what we can see here is that it's showing you the largest sectors within the market going back to 1800, and the reason I wanted to show this slide is because there's been a lot of talk about the fact that we have this concentration, high concentration in the top 10 companies within the US, the first thing you can see from this is that, you know, you can get really big concentration levels from the sectors that are in vogue because generally they're doing something transformational.

[00:23:01] Nathan Sweeney: And going back over a long period of time you can see that, you know, bringing the car to society transformed transport, railroad, steam engines, and we're seeing that today within technology, so the first thing I would say is clearly the tech sector could get bigger.

[00:23:21] Nathan Sweeney: Now, but the other thing we should be watching for is where next? So over time sectors, a new sector will come along, so one of the questions we've been asking is which sector will be next?

[00:23:33] Nathan Sweeney: So, one of the things that we're seeing at the moment is a lot of healthcare companies are trying to integrate artificial intelligence into their processes. Now as an example, if I'm a healthcare company and I'm trying to discover a new drug, that discovery process takes a long time because what you're doing is you're looking at large data sets, you've got lots of different trials and that takes time, so the average length to get a drug to market takes about seven years.

[00:24:01] Nathan Sweeney: Now, if I can actually compute a lot of data sets really, really quickly and get through that trial process faster, that's going to lead to a significant increase in profitability and drug discovery.

[00:24:14] Nathan Sweeney: So, some people are estimating that you could see that timeline shrink from seven years to two years, which would be quite transformational, so we're quite excited about the potential for AI to increase productivity, not just for tech companies, but for lots of other companies too.

[00:24:31] Nathan Sweeney: And there's been lots of reports by a lot of very prominent companies and, industry initiatives, so we've had Goldman Sachs come out and talk about the productivity uplift, McKinsey group also did a quite a detailed report on it and also the IMF, so the International Monetary Fund have also been talking about the potential for AI to boost productivity growth so that's something in which we will be keeping a keen eye on.

[00:24:55] Nathan Sweeney: Now, lastly, what I wanted to do is just talk about, our outlook and what we do here is every single quarter we sit down and we try to, put down on paper, what we think is our central case, what is the likelihood of that being better than expected or worse than expected?

[00:25:12] Nathan Sweeney: So, at the moment, our central case is that we see this moderate slowdown in growth, inflation working its way towards those target levels at 2% on a gradual reduction in interest rates, which will be good for equities because there's interest rates come down, that's good for financing for equities. It's good for bonds because they get capital appreciation and a falling rate environment. And it's bad for cash, which has been that area that a lot of people have been sheltering in because interest rates, as they fall, you're going to get a lower level of interest on that account.

[00:25:42] Nathan Sweeney: Now there is a likelihood that the economy is better than expected, now we're seeing a bit of this in the US compared to other regions, and, you know, still that's likely good for equities because it means that company earnings should be good because the economy is strong and we are seeing good company earnings in the US.

[00:25:58] Nathan Sweeney: Now for bonds, that means less interest rate cuts, so you're going to be focusing on the income you're getting, and then cash rates will likely remain attractive. And lastly, what if things are worse than expected? And we see a material slowdown in growth, you're likely then to get very swift interest rate cuts, so I would say bad for equities.

[00:26:18] Nathan Sweeney: Because obviously people will be concerned about the economy really good for bonds as interest rates fall and you get that capital appreciation, bad for cash because those cash rates go to zero.

[00:26:29] Nathan Sweeney: But on the points on equities, now, if you did see a swift reduction in interest rates, you'd probably get a short sell off in equities and then quite a swift reversal because the market would then conclude, actually, if interest rates are lower, that's going to be really good for cheap financing for companies.

[00:26:44] Nathan Sweeney: So what we're seeing now is that when you get swift government or central bank interaction or intervention, ultimately you get much swifter reactions in the market, so that's something we would be watching out for.

[00:26:57] Nathan Sweeney: So now I'm just going to hand over to Raj to talk a little bit about our portfolio positioning and how that all fits in.

[00:27:05] Raj Manon: Thank you, Nathan, and that leads us nicely to the team's tactical asset allocation positions. So, our current overweight’s and underweights, I apologise that this is a really busy slide, but if you focus on the left hand side of the screen, at the top, we have our main asset class positions. So taking into account, our central case from that previous slide, it makes sense that we are underweight cash.

[00:27:32] Raj Manon: And overweight bonds because we think bonds will benefit from interest rate cuts and we think interest rate cuts are coming, it's when rather than if. Then moving to equities, so we are currently underweight European equities. So, growth in Europe has continued to be weak and demand from key export markets, such as China has also continued to be weak, there are some early signs of improvement, but for now we remain underweight.

[00:28:04] Raj Manon: So, counterbalancing that underweight, we are overweight Japanese equities, and we have been since Q2 last year. And Japanese equities have performed really well for our portfolios, but we continue to be overweight, we think, this story still has room to run.

[00:28:21] Raj Manon: Overseas investor flows have continued to be positive; the corporate reform agenda continues to drive positive change and wage inflation is having a positive impact on domestic demand.

[00:28:34] Raj Manon: Then within bonds, we are underweight high yield bonds and the reason for that is that following a strong period of returns, credit spreads now in high yield bonds are quite tight, and there is some concern around the so-called maturity wall.

[00:28:49] Raj Manon: This is where corporates will have to refinance, come to the market, refinance those bonds at much higher rates. And counterbalancing that underweight isn't overweight to government bonds, where government bonds are set to benefit most from interest rate cuts and particularly in some markets, so in particular, we're overweight, uh, to UK gilts and we have a long duration position in UK gilts where we think we might see more interest rate cuts than are currently priced into the markets.

[00:29:21] Raj Manon: And finally, at the bottom of the screen, we are underweight absolute return, and this is because we see far superior opportunities in both equities and bonds, relative to absolute returns, I'll now hand over and back to Danny.

[00:29:38] Danny Knight: Raj, thank you for that.

[00:29:39] Danny Knight: Just a reminder, there's still time to pose live questions to us, so via zoom chat, please do send through questions and we'll endeavor to answer them on today's session. One thing that I'm really pleased about, and I think it's a differentiator for us, compared to many of our peers, is being quite pragmatic to our approach around asset allocation.

[00:29:58] Danny Knight: I think historically in the UK, there's been a lot of focus around having a UK bias, and what we can see from peer groups and some of our competitors, that this results in a very high weighting to the UK, and maybe underplaying other regions, and the US being one of those core regions in recent times.

[00:30:14] Danny Knight: And when I look at the allocation, across our portfolios, we're far more in line with a more MSCI world weighting. So I think that's something that is a differentiator sets us apart and it is worth looking at, and whilst here we are quite high level on asset allocation in the slides that you'll receive via email after today's webinar, you'll see a more detailed breakdown of both our asset allocation and also our portfolio positioning.

[00:30:40] Danny Knight: Before I move on to a summary, I might just pose the first question to Nathan and Raj.

[00:30:46] Danny Knight: Obviously, we are in election year globally, and this was the most number of elections globally we've seen. But if we look at the US in particular, I think regardless of who may be successful, whether that's Biden or Trump, I think they could both be very focused on the domestic economy and that could have a detrimental impact on some other economies around the world.

[00:31:07] Danny Knight: What is your take on, I guess, the two scenarios that are core to the election and how that might impact both the US market, but more broadly, other markets globally?

[00:31:18] Nathan Sweeney: Yeah, so I think, I think for the US, generally the US election is a global election, because whoever gets into power will shape relationships with lots of other countries, and at the moment we are in a heightened period of geopolitical tension.

[00:31:33] Nathan Sweeney: It's likely that if Trump was to get elected, he would look to implement tax cuts, which would be good for equities, but then also it's likely that you would see increased trade restrictions with China.

[00:31:46] Nathan Sweeney: So, in a sense, that could be inflationary, so from our perspective, we think that scenario would likely be good for equities and possibly less good for bonds in the short term, because that government spending would push up borrowing costs and again, could likely impact the bond market. So, we have been doing quite a lot of work on this and kind of scenarioing out and testing what would work in the different environments. So, you know, it is something which we'll be keeping a keen eye on as we move closer to that election.

[00:32:16] Danny Knight: Thank you, Nathan.

[00:32:17] Danny Knight: I think really to summarise the global economy is doing fine. We are seeing the cost-of-living pressures easing. We are seeing central banks in particular, the US wanting to cut rates.

[00:32:27] Danny Knight: Opportunities, I would suggest, are more attractive today than they have been for a considerable period of time. That, however, being said there are things to be positive about, but there are things that we need to remind ourselves that could create volatility.

[00:32:39] Danny Knight: We could see political risks globally. We have the US election that Nathan's very eloquently discussed a short while ago, and that really does lead us to make sure that you have a diversified portfolio that can navigate these challenges and not get carried away.

[00:32:53] Danny Knight: And finally, with different macro paths and diverging markets, active management and thoughtful portfolio management will remain crucial.

[00:33:02] Danny Knight: As I said at the beginning of today's session, these webinars will become a regular feature happening on a quarterly basis. We hope that you found today's webinar insightful and here are the dates for forthcoming webinars, which will also be sent to you via email.

[00:33:19] Danny Knight: And if you want more information or have any questions, please do contact a member or myself or a member of the regional team who would be delighted to help you.

[00:33:29] Danny Knight: One of the differentiators that sets us apart at Marlborough is how we want to partner with you and your businesses, we have a tremendous amount of insights, podcasts, resources and also availability of portfolio managers really to support you and your businesses.

[00:33:45] Danny Knight: Thank you, Raj, thank you, Nathan, and thank you for joining us today.

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Risk Warnings

Source: Morningstar / Marlborough. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. Performance data is calculated on a NAV-NAV basis, net of fees and reinvestment of all dividends and capital gains.

We have chosen the IA sector that most closely matches the portfolio, in limited instances the allocations of the portfolio may fall outside the boundaries of the relevant IA peer group.Our portfolios invest for the long-term and may not be appropriate for investors who plan to take money out within five years. The portfolios will be exposed to stock markets and market conditions can change rapidly. Prices can move irrationally and be affected unpredictably by diverse factors, including political and economic events. The portfolios may have exposure to bonds, the prices of which will be impacted by factors including; changes in interest rates, inflation expectations and perceived credit quality. When interest rates rise, bond values generally fall. This risk is generally greater for longer term bonds and for bonds with perceived lower credit quality. The portfolios invest in other currencies. Changes in exchange rates will therefore affect the value of your investment. The portfolios may invest a large part of their assets in funds for which investment decisions are made independently of the portfolios. If these investment managers perform poorly, the value of your investment is likely to be adversely affected. Investment in funds may also lead to additional fees arising from holding these funds. In certain market conditions some assets may be less predictable than usual. This may make it harder to sell at a desired price and/or In a timely manner.

Regulatory Information

This material is for distribution to professional advisers only and should not be distributed to or relied upon by any other persons. It’s provided for general information purposes only and is not personal advice to anyone to invest in any portfolio or product. Information taken from trade and other sources is believed to be reliable, although we don’t represent this as accurate or complete and it shouldn’t be relied upon as such. Calls will be recorded for training and monitoring purposes. Issued by Marlborough, authorised and regulated by the Financial Conduct Authority (reference number 115231). Registered office: Marlborough House, 59 Chorley New Road, BL1 4QP. Registered in England No. 01947598.

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