emery little core income portfolio 5 bi annual review draft

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Income Portfolio 5 1 st Half, 2014 Bi-Annual Income Portfolio Review

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Page 1: Emery little core income portfolio 5 bi annual review draft

Income Portfolio 5 1st Half, 2014

Bi-Annual Income Portfolio Review

Page 2: Emery little core income portfolio 5 bi annual review draft

Emery Little Core Income Portfolio 5

First Half, 2014 Page 2

Contents

Portfolio Outline ..................................................................... 3

Market Review ....................................................................... 4

Market Performance .............................................................. 5

Core Portfolio Performance Summary ................................... 6

Asset Allocation ...................................................................... 7

IMA Sector Performance ........................................................ 8

Notable Contributors ............................................................. 9

Notable Detractors ............................................................... 10

Portfolio Breakdown ............................................................ 11

Asset Allocation Changes ..................................................... 12

Activity ................................................................................. 13

Notes .................................................................................... 14

Page 3: Emery little core income portfolio 5 bi annual review draft

Emery Little Core Income Portfolio 5

First Half, 2014 Page 3

Emery Little Income Portfolio 5 – Outline

Your Broader Portfolio Profile Income Portfolio Profile Portfolio Benchmark

As we have discussed at length, Emery Little help

you to consider your portfolio in the context of

your broader financial situation. We refer you to

your Investment Map that Emery Little update for

you annually.

The suitability of your core portfolio has been

carefully selected when considering your risk

outcomes in the context of your broader asset

base (excluding your prime residence) when

combined with your immediate needs and future

goals and aspirations.

This portfolio is suitable for investors requiring income

either immediately or in the short term, from the

whole of, or a proportion of their portfolio.

Investors can expect most of their portfolio to be

invested in growth assets, such as UK and global

equities and a reasonable allocation to defensive

assets, such as fixed interest and property.

The portfolio is likely to exhibit short-term volatility

due to the equity content and so is suitable for

investors who can take a long term time horizon and

will not need access to these funds for up to 5 years.

Suitable for investors requiring income either

immediately or in the short term, from the whole of,

or a proportion of their portfolio.

The portfolio benchmark is made up of a

combination of the sector average returns of the

funds in the portfolio, with the same weightings as

funds in each portfolio. The portfolio benchmark is

dynamic and its composition may change with any

changes in the asset allocation or fund selection of

the portfolio.

Portfolio Aim

The portfolio aims to achieve a higher level of

income (target yield 3.5% after charges) than is

typically available from cash. The target income

yield is not guaranteed and may vary.

Page 4: Emery little core income portfolio 5 bi annual review draft

Emery Little Core Income Portfolio 5

First Half, 2014 Page 4

Market Review

Market Commentary 6 months to 30 June 2014

After a euphoric run at the end of last year, the start of

2014 was a sobering reminder for market bulls that

volatility has not gone anywhere. Equities worldwide

plunged in January as currency troubles in emerging

markets sent twitchy investors into a selling frenzy.

Nonetheless, sentiment bounced back strongly and as the

Northern Hemisphere welcomed the start of spring, major

markets were once again threatening record highs.

Global equities continued on a positive trajectory in the

second quarter, with the world's major central banks

having a key influence on market sentiment. Optimism over

economic trends in the US, UK trumped geo-political

concerns in Eastern Europe (Russia-Ukraine) and the Middle

East (especially Iraq) to keep major indices on a broadly

upward trajectory in the three months to June.

However, market drivers remain in conflict: broad optimism

of an accelerating US-led global economic recovery cannot

completely displace fears of a sudden slowdown or banking

crisis in China or stagnation in Europe.

Though the US spent much of the first quarter shivering

through the coldest winter in decades, most economic

indicators still point to an improving growth outlook. US

investors looked beyond the alarming 2.9% slump in GDP in

Q1 – influenced heavily by the extreme winter weather –

and celebrated positive industrial, housing, and jobs data.

Inflation crept up to an 18-month high in May, but Federal

Reserve is being cautious not to spook markets by

accelerating the gradual withdrawal from its quantitative

easing programme (the monthly stimulus is now down to

US$55bn from a peak of $85bn).

Having navigated the worst of the storm the European

Central Bank (ECB) finally acted boldly in June to put some

wind back in the sails of the Eurozone economy and ward

off the spectre of a Japan-like era of deflation.

The bank cut its benchmark financing rate from 0.25% to

0.15% - with the deposit rate falling into negative territory

at -0.1% - while launching a four-year programme of cheap

loans for banks in the hope that this will encourage more

lending and breath some life into the real economy. ECB

leader Mario Draghi hammered home the message for

markets by saying that the bank was “not finished yet”.

The ECB's unprecedented move came soon after the

surprising results of the EU Parliamentary elections in May,

where the fallout of a prolonged economic slump was

clearly evident. In what was described in the media as a

'political earthquake', disenfranchised voters turned their

backs on the establishment and handed nationalist fringe

parties some of their best ever results.

The UK has emerged as a leader in the economic recovery

with the IMF raising its growth forecast for 2014 to 2.9%,

the highest rate for any developed economy.

In spite of this, with inflation falling at the start of the year,

the Bank of England (BoE) has so far not shown any sign

that it is ready to increase its benchmark rate or reduce its

own £375bn QE plan just yet.

That said, the BoE’s Mark Carney surprised many at his

annual Mansion House speech on 12th June by saying that

interest rates could be raised “sooner than markets

currently expect.” The comments had an immediate impact

in the markets as investors adjusted to the possibility of a

rate hike before the end of the year. Carney has since

played down the hawkish tone but is facing some criticism

for sending mixed messages that undermine his 'forward

guidance' approach to monetary policy.

Carney's BoE remains most concerned about potential

overheating in the housing market, especially in London

where the average cost of property has soared above

£400,000 for the first time ever. Against this backdrop, the

Treasury gave the BoE new powers to impose restrictions

on mortgage lending, including a 15% cap on the number of

new housing loans that banks can offer that exceed 4.5

times the borrower's salary.

Page 5: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 5

First Half, 2014

Market Performance Performance of indices over six months to 30 June 2014.

0.3

3.3

9.1

5.6

1.9

1.6

1.5

3.5

-1.5

3.2

2.8

7.8

0.5

2.3

17.6

9.2

12.4

13.1

19.1

9.8

-1.2

10.0

1.4

-22.9

-25 -20 -15 -10 -5 0 5 10 15 20 25

Bank Of England Base Rate

UK Gilts

UK Property

Residential Property

UK Large Caps

UK Equities

UK Small Caps

US Equities

Japan Equities

Global Equities

Emerging Markets Equities

Gold

Total Return (%)

1y

6m

Page 6: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 6

First Half, 2014

Income Portfolio Performance Summary

Performance summary for six months to 30 June 2014.

Over the six months to 30 June 2014 Income Portfolio 5 returned 2.2%. This compared to a rise of 1.1% in the Retail Price Index (RPI), a 1.9% increase in the FTSE 100 Index, and a return of 3.3% in the FTSE British Government All Stocks Index (all figures total returns in Sterling). This brought the 12-month performance of Income Portfolio 4 to 6.4%.

0

1

2

3

EL Income Portfolio 5 EL Income Portfolio 5 Benchmark

Tota

l Ret

urn

(%

)

0

2

4

6

8

10

12

14

2013 2012

Tota

l Ret

urn

(%

)

EL Income Portfolio 5

EL Income Portfolio 5Benchmark

Page 7: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 7

First Half, 2014

Asset Allocation Core Portfolio asset allocation as at 30 June 2014.

Asia Pacific Equities8%

European Equities12%

Global Fixed Interest17%

Japan Equities3%

Money Market5%North America Equities

16%

Others2%

Property7%

UK Equities24%

UK Fixed Interest6%

Page 8: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 8

First Half, 2014

IMA Sector Performance IMA Sector performance over six months to 30 June 2014.

-4 -3 -2 -1 0 1 2 3 4 5 6 7

IMA Asia Pacific Excluding Japan

IMA Europe Excluding UK

IMA Global

IMA Global Emerging Markets

IMA Global Equity Income

IMA Japan

IMA Money Market

IMA North America

IMA Property

IMA Sterling Corporate Bond

IMA Sterling Strategic Bond

IMA Targeted Absolute Return

IMA UK All Companies

IMA UK Equity Income

Total Return (%)

Asia Pacific

The MSCI Asia Pacific Index reached a six year high during 2014 as a result of improved economic growth in developed markets, particularly the US. This, combined with political developments such as Narendra Modi’s election win in India, led to improved investor sentiment towards an expected upturn in exports. On the negative side, geopolitical risks were raised in China.

Japan

Having delivered stellar returns in 2013, performance of the Japanese market year to date has disappointed. Forward outlook is positive due to the BoJ flooding the market with liquidity, historically cheap valuations and structural reform efforts. Government legislation to lift the ceiling on equity holdings for the Government Pension Investment fund offers the prospect of a major boost for Japanese equities.

Property

Commercial property has led performance of the IMA sectors year to date with the stability of income returns attracting investors. Yields are particularly attractive and the resurgence of commercial property looks set to continue.

Sterling Corporate Bond

As equities have become comparatively more expensive, the incentive to sell bonds has diminished throughout 2014. Increased geopolitical risk at the start of 2014 benefitted bonds as a safe haven defensive asset. The chase for yield has meant that Investment Grade corporate bonds are now more attractive from a risk/return perspective than high yield bonds.

Page 9: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 9

First Half, 2014

Notable Contributors Performance of top performing income portfolio funds over six months to 30 June 2014.

0 2 4 6 8 10

First State - Global Listed Infrastructure

Artemis - Global Income

Newton - Asian Income

Ignis - UK Property

Schroder - Global Property IncomeMaximiser

Total Return (%)

Artemis Global Income

Fund manager Jacob de Tusch-Lec has managed to achieve 1st quartile performance by eschewing big name stocks such as Nestle, Shell and Vodafone in favour of less popular mid-cap companies trading relatively cheaply, that are well positioned to benefit as the economic recovery continues, particularly in the US and Europe. Mr de Tusch Lec is keen on Europe as a recovery play, and the fund is overweight Europe, particularly Spain, Italy and Portugal.

Fidelity Strategic Bond

Consistent and conservative fixed income manager Ian Spreadbury benefitted from a low allocation to high yield, with over two thirds of the portfolio allocated to quality bonds and government bonds.

First State Global Listed Infrastructure

The infrastructure sector’s defensive fundamentals and long-term structural drivers proved beneficial in uncertain global equity markets and geopolitical risk. Global road networks inability to keep up with levels of motor vehicle usage over recent years, has benefitted railways and toll roads. Mobile tower companies’ revenue streams are growing in line with increased customer demand for data and video services.

Ignis UK Property

Commercial property has enjoyed an excellent six months as positive sentiment towards the asset class continues to drive the market. Industrials and offices posted the strongest returns, with London continuing to contribute significantly.

Newton Asian Income

The fund has largely escaped recent volatility in Asian emerging markets. Exposure to the Philippines, which has experienced a reasonable rebound and Thailand, whose market has been robust in spite of the political situation, have helped the fund in 2014.

Page 10: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 10

First Half, 2014

Notable Detractors Performance of poorest performing core portfolio funds over six months to 30 June 2014.

-4 -3 -2 -1 0 1

Lindsell Train - UK Equity

Schroder - UK Alpha Income

Schroder - Income Maximiser

Jupiter - Japan Income

Total Return (%)

Lindsell Train UK Equity

Following a resolute buy-and-hold policy, with a very concentrated set of holdings, and little regard for the index, renowned co-manager Nick Train was able to steer the fund through the difficult waters of a pullback in investor sentiment towards UK equities during the first half of 2014.

Jupiter Japan Income

Underperformance in the first half of 2014 can be attributed somewhat to a rise in consumption tax, and manager Simon Somerville’s relatively concentrated portfolio of 40-50 holdings. With PM Abe having fired the ‘third’ arrow, in the form of a reduction in corporation tax and reform of the Government Pension Investment Fund (GFID), the fund is well placed to benefit.

Schroder Income Maximiser

The performance of financials was mainly positive, however favoured life assurance holdings Aviva and Legal & General were affected by unexpected changes to the structure of the UK annuity market in Q1. A number of high street retailers underperforming in Q2, combined with the failure of Pfizer’s bid to purchase AstraZeneca were a drag on overall fund performance.

Schroder UK Alpha Income

Fund Manager Matt Hudson follows a business cycle based approach with high turnover depending on where Matt seeks to position the portfolio to take advantage of economic conditions. Hudson was able to reduce the impact of the strength of Sterling hurting cyclical sectors and the wide scale sell off of UK mid caps that followed Mark Carney’s Mansion House speech, by moving the portfolio into more cautious, defensive large-cap holdings.

Page 11: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 11

First Half, 2014

Portfolio Breakdown

Fund breakdown by IMA sector as at 30 June 2014.

Asia Pacfic Ex UK4% Europe Ex UK

3%Global

5%

Global Emerging Markets4%

Global Equity Income18%

Japan2%

Money Market2%

North America5%

Property7%

Sterling Corporate Bond16%

Sterling Strategic Bond6%

Targeted Absolute Return6%

UK All Companies4%

UK Equity Income18%

UK Equity Income Artemis Income (5.0%)

Schroder Income Maximiser (10.5%) Schroder UK Alpha Income (2.75%)

Global Equity Income Artemis Global Income (5.75%)

Newton Global Higher Income (5.75%) Threadneedle Global Equity Income (6.50%)

Sterling Corporate Bond Fidelity Moneybuilder Income (8.25%)

M&G Strategic Corporate Bond (8.25%)

Property Ignis UK Property (5.0%)

Schroder Global Property Securities (2.0%)

Targeted Absolute Return Newton Real Return (6.0%)

Sterling Strategic Bond M&G Optimal Income (5.5%)

Global First State Global Listed Infrastructure (1.0%)

M&G Global Dividend (4.25%)

North America Jupiter North American Income (5.0%)

Asia Pacific Ex UK Newton Asian Income (4.0%)

Global Emerging Markets First State Global Emerging Market Leaders (4.0%)

UK All Companies Lindsell Train UK Equity (4.0%)

Europe Ex UK Standard Life European Equity Income (2.75%)

Money Market Fidelity Cash (2.0%)

Japan Jupiter Japan Income (1.75%)

Page 12: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 12

First Half, 2014

Fund Allocation Changes

Asset Allocation Previous 6

Months End Latest 6

Months End Change

Artemis - Global Income 0.00 5.75 +5.75

Artemis - Income 5.00 5.00 0.00

Fidelity - Cash 2.00 2.00 0.00

Fidelity - Moneybuilder Income 8.25 8.25 0.00

First State - Global Emerging Markets Leaders 4.00 4.00 0.00

First State - Global Listed Infrastructure 1.00 1.00 0.00

Ignis - UK Property 5.00 5.00 0.00

Jupiter - Japan Income 1.75 1.75 0.00

Jupiter - North American Income 5.00 5.00 0.00

Lindsell Train - UK Equity 4.00 4.00 0.00

M&G - Global Dividend 2.00 4.25 2.25

M&G - Optimal Income 5.50 5.50 0.00

M&G - Strategic Corporate Bond 8.25 8.25 0.00

Newton - Asian Income 4.00 4.00 0.00

Newton - Global Higher Income 8.00 5.75 -2.25

Asset Allocation Previous 6

Months End Latest 6

Months End Change

Newton - Real Return 6.00 6.00 0.00

Schroder - Global Property Income Maximiser 2.00 2.00 0.00

Schroder - Income Maximiser 10.50 10.50 0.00

Schroder - UK Alpha Income 2.75 2.75 0.00

Standard Life - European Equity Income 2.75 2.75 0.00

Threadneedle - Global Equity Income 12.25 6.50 -5.75

Page 13: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 13

First Half, 2014

Portfolio Activity Income Assets

The Artemis Global Income fund, managed by Jacob de Tusch-Lec, is introduced to the Emery Little Model Portfolios for Income. The Artemis fund provides additional diversification

in the global equity income sector alongside existing holdings in the Threadneedle Global Equity Income fund and the Newton Global Higher Income fund.

Notable Fund Events

Schroders have recently brought the management of their Global Property Securities franchise in-house, establishing a London based team with the appointment of fund managers

Tom Walker and Hugo Machin from AMP Capital and a further two fund analysts reporting directly to the team. This strategic move ends the previous JV arrangement with

European Investors Inc (EII Capital Management) and Jim Rehlaender who had previously managed the funds (although EII will continue to manage a number of segregated

mandates for Schroder).

Ignis Fund Managers Ltd have recently announced that they are to convert the Ignis UK Property Fund into a new fund, the Ignis UK Property PAIF. PAIF stands for ‘Property

Authorised Investment Fund’. This is a type of collective investment that must invest in physical property (either commercial or residential), UK Real Estate, Investment Trusts or

foreign equivalents.

Page 14: Emery little core income portfolio 5 bi annual review draft

Emery Little Income Portfolio 5 Page 14

First Half, 2014

Notes Past performance is no guarantee of future returns. The price of shares and the income from them can fall as well as rise. The value of this investment is not guaranteed and on encashment you may not get back the full amount invested.

Please be aware that there may be occasions when an individual fund or funds may have a higher risk rating than your overall stated attitude to risk. If this is the case, then the overall risk rating applied to all of the combined funds being recommended is still designed to meet the portfolio risk profile and objectives.

The portfolio benchmarks are constructed based on sector average returns* of funds within each portfolio with the same weightings as funds in each portfolio. Portfolio benchmarks are dynamic and their composition may change with any changes in the asset allocation or fund selection of the portfolio. Portfolio benchmark performance data includes Emery Little fees (0.75% per annum) and typical platform charges (0.30% per annum).

Performance data may show backtested performance of the core portfolio from the earliest date where data is available. Performance data is indicative only and actual portfolio performance may vary. Constituent funds of the portfolio may vary depending on your platform provider.

Performance data includes Emery Little fees (0.75% per annum) and typical platform charges (0.30% per annum). It is important to note that performance data before 2013 will generally also include 'bundled' fund charges such as an element of fund commission paid to Emery Little (typically 0.5% per annum for equity funds) and a rebate of fund management charges paid to the platform provider (typically 0.25% per annum for equity funds). The inclusion of 'bundled' fund charges as well as the additional explicit Emery Little fees and platform charges means that performance data before 2013 may be significantly understated due to the effective application of double charges. Once IT systems allow us to provide performance data without this double charging effect, this information will be made available.

*Fund sectors are defined by the Investment Management Association (IMA) for more information see investmentfunds.org.uk.

The following indices are used for market performance (page 5): FTSE British Government All Stocks (UK Gilts), IPD UK All Property (UK Property), Halifax Property Index (UK Residential Property), S&P 500 (US Equities), FTSE World Index (Global Equities), FTSE 100 (UK Large Caps), FTSE All Share (UK Equities), TSE TOPIX (Japan Equities), FTSE Small Cap Index (UK Small Caps), MSCI EM (Emerging Market Equities), S&P GSCI Gold Spot (Gold).

All portfolio data is provided by FE Analytics unless otherwise stated. Figures may be subject to rounding differences.

Performance data is total return cumulative performance to 30 June 2014, on a bid-bid basis, rebased in Pounds Sterling. Volatility is 3 year cumulative annualised volatility to 30 June 2014.

Care has been taken to ensure that the information is correct but Emery Little neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein.

Emery Little LLP is authorised and regulated by the Financial Conduct Authority and provides advice on investment products. The registered office is Ebenezer Chapel, Bradden Lane, Gaddesden Row, Herts HP2 6JB. Emery Little LLP is registered in England No. OC321024.