Collectively our eight portfolios outperformed their respective national benchmarks on 39 out of 45 occasions

There seem few signs of a slowdown as growth is evident in the USA, Europe, Japan and the emerging economies. Despite the high valuations placed upon the developed world’s stock markets, the high profits in the US and recovery elsewhere continues to provide support for global equity markets. The major central banks of Europe, Britain and Japan continue to support low interest rates and liquidity.

US equity valuations are high relative to the other major stock markets and historical averages. US corporate borrowings are back to high levels and exposes the US markets to some vulnerability. The improved earnings growth and momentum in the economy prevents us from underweighting US stock. The European economy continues to improve and equities are underperforming relative to the pick-up in economic growth and therefore offer further growth opportunities. We have taken
a slight overweight position in European stock. We will maintain our positions in Asia, Japan and emerging markets where companies are trading on less demanding valuations and continue to deliver earnings growth.

We are taking an underweight position on the UK mainly due to the downgrade in growth forecasts. The FTSE 100 multinational companies have done well due to sterling devaluation. Ultimately however, the currency will find a new post Brexit level that we cannot predict.

We are decreasing our holdings in fixed interest securities, particularly government bonds. We will remove conventional gilts from our direct holding but retain index- linked gilts due to the pick up in inflation. The projected returns from government bonds are modest at best in all major currencies. Corporate credit is better placed, particularly high-yield and long-dated investment grade bonds. Emerging market credit offer attractive alternatives. Our bond focus will remain in strategic bonds and high yield bonds. We are sensitive to the possibility of a bond market correction because of the ending of QE from the Fed and then the ECB.

We expect returns across all major asset classes to remain subdued as central banks raise interest rates and unwind QE programmes over the next 12 months or more. There is something of an upside to equities on the basis that few alternatives are available for growth and yield. Real Estate also look quite resilient as the attractiveness of property compared to other long duration assets has improved.

High stock markets are vulnerable to shocks or spooks and sources of risk to markets remain in the form of North Korea, a Catalonian stand-off, a heavy slowdown in China or Donald Trump failing to deliver tax reforms.

Bonds, stock and property assets continue to benefit from subdued inflation with little sign that this likely to change other than in the UK. However an increase in inflation could undermine asset values, but this seems unlikely in the near future.

We are inevitably moving closer to the end of this current cycle and so we are increasingly thinking of how to add protection to downside risk while still
accessing growth opportunities. We have held our overweight cash positions and have introduced into all of our portfolios some Absolute Return Funds that
invest in short and long equity positions that can provide both growth and protection.

We have retained our portfolio diversification into differing asset classes in the form of UK brick and mortar property funds, global property securities, global infrastructure funds, insurance market funds, target return funds and cash.

As of 1st December 2017, our best performing funds held within our portfolios over the last 12 months have been;

Henderson China Opportunities Fund	40.24%
Old Mutual UK Smaller Companies Fund	40.10%
Veritas Asian Fund	36.93%
Blackrock European Dynamic Fund	35.73%
Lindsell Train Japanese Equity Fund	33.55%
Legg Mason Japanese Equity Fund	32.78%
Fidelity Emerging Asia Fund	30.78%

The main reasons behind these returns are the growth in Asian, Japanese and European markets. Stock markets in these regions are at all time high valuations. The performance of the Old Mutual UK Smaller Companies fund was due to the stock selection and encouraging environment for UK small cap stock.

As on 1st December our poorest performing funds held within our portfolios over the past 12 months have been.

Old Mutual Gold and Silver Fund	-5.53%
iShares Overseas Corporate Bond Fund	0.90%
CF Woodford Equity Income Fund	1.07%

The reasons behind these returns is that gold funds generally fell back as bond yields improved and equities continued to rally. Overseas corporate bonds where influenced by price falls as yields increased as well as sterling devaluation impacting oversea income. Neil Woodford has had a poor period of performance due to some stock picking errors. None of these funds will be retained in the 28th Edition of our portfolios.

As far as the 28th Edition of our portfolios is concerned, eight of the funds from the 27th Edition have been substituted while nine new funds are added. Our asset allocation remains broadly in line with that of Edition 27. We are holding high levels of cash and have reduced our fixed interest, US and UK exposure across the portfolios to help dampen volatility. We have also introduced into all of our portfolios some Absolute Return Funds that invest in short and long equity positions that can provide both growth and protection. Our general strategy is to remain very well diversified across all portfolios.

We are pleased to report that the gross performance of our portfolios in each of our eight portfolios up until 4th December 2017, as measured against the
associated national Investment Association (IA) benchmark, has been very satisfying. The relative performance is measured over six time periods from 6 months, 1 year, 2 years, 3 years, 4 years and 5 years. Five of our portfolios showed up very well producing some significant gains ahead of benchmarks over all time periods. Collectively the eight portfolios outperformed their respective benchmarks on 39 out of 45 occasions (87% competency).

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