Market update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of September 2019.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.


Global manufacturing is suffering its sharpest and most geographically widespread downturn in several years as the US-China trade war weighs on factories around the world. So far at least, contagion has not spread too much to the service sector. Overall activity and employment in the world’s major economies has held up well, although Germany’s economy (which is heavily export-oriented) contracted in the second quarter of 2019. In response, some central banks have begun to loosen monetary policy again. In the US, the Federal Reserve cut interest rates twice, in July and September, by a quarter of a percentage point each time. In the eurozone, the European Central Bank cut the deposit rate by 10 basis points to a record low negative 0.5% and restarted its bond buying programme.

Equities (or shares)

The UK stockmarket, as measured by the FTSE 100 Index, finished the third quarter almost flat, with rallies in July and September being offset by a sharp sell-off in August. Investors continued to be unsettled by weakness in global economic data, particularly in manufacturing, and the possibility of a trade war between the US and China, although they were also encouraged by support provided by the world’s central banks. Closer to home, parliamentary wrangling over the Brexit process persisted, with shares performing well whenever the likelihood of the UK crashing out of the European Union without a deal seemed to recede. Overall, hopes that a no-deal exit might be avoided helped the domestically-focused FTSE 250 Index outperform the more international FTSE 100.  

What do you mean by Equities?

  • Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:
    • share prices may increase as the value of the company increases.
    • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset?

  • Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).
  • The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

UK government bonds (gilts) delivered solid returns in the third quarter of 2019. The prospect that the UK may leave the European Union without a deal, combined with general unease over the deteriorating global economic outlook, helped drive a further rally in gilts as investors sought refuge in government bonds. 10-year gilt yields fell below 0.4% for the first time ever in early September, before retracing some of these moves later in the month. UK corporate bonds also delivered positive returns over the period, with performance mainly driven by the strong move in gilt yields.

What do you mean by Fixed Interest?

  • Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.
  • Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.
  • In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.
  • Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

  • On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.
  • Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.


UK commercial property recorded a small positive total return in July and August 2019 according to property consultant CBRE. (September data was not available at the time of writing.) However, the overall positive return masks a sharp contrast between Offices and Industrial (where capital values have risen) and Retail (where capital values have declined substantially this year). The profitability of retailers is being squeezed by structural changes in the way we shop. This has resulted in some having to employ Company Voluntary Agreements to manage their rental commitments. Falling rents and investors demanding higher yields from the properties they own have driven the decline in capital values. However, overall we expect UK commercial property to generate low single-digit returns over the next five years, with rental income representing a significant proportion of returns.

What do you mean by Property?

  • For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).
  • The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

  • Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.
  • The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.
  • This leads to a number of risks for funds investing in property:
    • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
    • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.
    • There may be delays removing your money from the fund if property cannot be sold.
    • Property fund valuations may be revised periodically, upwards or downwards.
    • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.
    • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.

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