The Fund rose 3.4% in May as Equity markets continued their recovery from the March lows, with many equity markets reaching new all time highs (eg US, Nasdaq, Japan although not the UK).

Year-to-date the Fund has returned 9.3%. Since launch on 12th July 2017 the Fund has returned 91.3% which compares with a return of 72.5% from the Investment Association (IA) Flexible Sector. Against the IA Flexible Sector, the Fund is ranked in the top quartile over 1 year and 5 years, and ranked in the second quartile over 3 years and since inception.

Against all 656 funds in the four IA Mixed Asset Sectors (Flexible Sector plus the 0-35% Shares, 0-60% Shares & 40-85% Shares Sectors), the Fund is ranked in the top decile over 1, 3 and 5 years.

In May World Equities rose 10.2% in GBP terms. Equity markets are being driven by very strong earnings momentum especially in the US. Technology (+16.9%) was the stand-out sector, surging especially in the second half of the month. Materials and Consumer Discretionary gave modest positive returns (+4%) and Healthcare returned +3%, but everything else was muted by comparison. Energy (-5%) and Utilities (-4%) were the worst performing global sectors.

Gold was down slightly in May (but flat in GBP terms due to GBP weakness) and the Bloomberg Commodity Index fell 2.8%. Gilts gave a modest positive return.

The asset allocation remains defensive. The Equity allocation is only 46% because Equity Value Yield is low (and therefore risky) by historical standards. The offset to this, which is propelling Equity markets higher, is that earnings growth has been very strong. Expectations for earnings growth from current levels over the next 12 months are still as high as 20% globally and in the US, even higher in Asia although lower in Europe. If this materialises, then equities could go higher without further deterioration in valuation, but inevitably any earnings disappointment could have a seriously negative impact on equities. The key message is to watch earnings momentum!

Gold and Commodities are still in a bull market (despite the setback from Gold being overbought in February and despite the impact on a Commodity basket from the fall in the oil price from peak levels). Both remain attractive medium/long term especially in an environment of expensive equity valuations.

Bond markets (Government 10 Yr) are mostly in a bear market and they are not yet cheap. Real yields probably need to rise to pre-QE levels of 2-4% in order to make a valuation case for Bonds.

The consequence of such strong outperformance by Technology is that there are many sectors which, by definition, have lagged. Healthcare, Staples, Industrials, Financials and Utilities have all been terrible in relative terms. They are bound to offer a great opportunity when the inevitable rotation occurs. We don’t know at this stage know when this will happen but some of them are looking increasingly oversold, so the opportunity might come sooner rather than later.