Investment Update: June 2019

We have made some changes to our House View on equities within portfolios.

Further to the commentary in the media about manager Mr Neil Woodford, we confirm Casterbridge Wealth have no money invested in the Woodford group of funds, nor have we ever.

We are positive about the investment opportunities in the medium-term and confident of the income yield on the portfolios to support withdrawals being maintained. However, markets are seeing greater volatility due to growing uncertainty around politics and macro-economic conditions, and so we are increasing the quality of our portfolio’s assets in an effort to reduce risk.

Asset Allocation: we have rotated out of higher-risk “high yield” bonds into lower-risk global bonds, reduced our equity exposure to Europe and are looking to increase exposure to UK and US equities. Whilst it is always regrettable to sell a stock at a loss, we have to maintain a disciplined “sell process” and accept that we are not going to get every investment right, all of the time. We also have to consider that other opportunities exist and it is for us to find the most suitable ones to try and achieve your financial objectives. To that end, we have made some changes which are focused on specific sectors within the market, namely Financials, Telecoms and Transportation to be reduced; Healthcare and Technology to be increased.

Financials: we have sold Polar Capital Financials Trust (for collective investors) and Barclays and Caixa Bank (for direct equity investors). When we bought these stocks, we (along with market sentiment) were of the firm belief that interest rates would rise, albeit gradually. However, the macro-economic picture has changed significantly in recent months, with Brexit and Trump’s trade wars continuing to dominate headlines. To try and mitigate fears of a potential recession, most central banks are now looking at maintaining or cutting interest rates, rather than increasing. This will have an immediate impact on Financials’ ability to increase their profits hence why many of their share prices have been weak. Given this outlook, we have moved to an underweight position on the sector. We are maintaining HSBC as our core global bank, Lloyds as our UK domestic exposure and BNP Paribas as the ‘recovery’ holding.

Telecoms: we have sold Verizon and Deutsche Telekom as we have been overweight in this sector for some time and having seen the share price of these companies rise in recent months, are now comfortable taking the proceeds and finding better opportunities elsewhere. There is significant overlap between T-Mobile and Deutsche Telekom and as Verizon’s business model is similar to T-Mobile, we have therefore, decided to retain T -Mobile. We retain our holdings in BT as part of our ‘content provider theme’ with more football being added to their roster next year; they are the only large operator of Fibre Optic Broadband infrastructure in the UK. We have Vodafone as the core 5G mobile holding (the cost of 5G licences and the debt taken on to pay for them has negatively impacted this stock).

For direct equity clients we have sold Stagecoach as they were rejected from bidding for all UK rail franchises; we believed that the company stood a strong chance of retaining the Virgin franchise (there is an outstanding legal challenge). To be banned from bidding for them because they refuse to accept the final salary pension liabilities, had an immediate impact on the share price and despite partly recovering, we no longer have sufficient conviction to warrant holding it any longer.

We had maintained an underweight to Technology to the end of last year; we added some direct stocks for relevant clients to the portfolio and we will continue to do so. However, we are finalising the research into a specific technology collective holding as we see opportunity likely through further market volatility.

We have exposure to Pharmaceutical businesses and want to continue broadening our exposure to healthcare. We are completing the process of research into a healthcare collective and we have direct stocks both here and abroad to add over the coming months. We are always keen to keep the underlying earnings international and in areas of economic expansion, at the expense of the UK and mature businesses/economies.

We have to accept that the trade talks between China and the US can push markets swiftly higher or lower and sectors like technology are sensitive to that, therefore we are retaining our exposure to equities overall but have raised some cash to be available for investment, if and when we see further opportunity.
We will continue to focus our resources on not only monitoring our current holdings in portfolios but also scouring the market for new opportunities, particularly now we have additional cash to put to use.

Important information
The views and opinions within this publication are those of Casterbridge Wealth Ltd at time of writing. The information does not constitute a guarantee of return from an investment managed by Casterbridge Wealth, nor is it advice or a recommendation to buy or sell. You should not make any investment decisions on the basis of it.
Changes in currency exchange rates may have an adverse effect on the value, price or income of an investment. You should be aware of the additional risks associated with funds that invest in emerging or developing markets.
Past performance is not a guide to future results. The value of an investment and any income from it may go down as well as up and you may not get back the original amount invested.

This publication is for information only and should not be reproduced, copied or made available to others.

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