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Article

Market Review

Despite continued political and geopolitical uncertainty in a number of areas throughout 2018 including escalating protectionist trade rhetoric, the underlying health of the global economy and strong corporate earnings enabled equity markets to more than recover their first quarter losses.

Whilst there have been some signs of moderation in short term economic growth in the UK, Europe and China, the key US economy has benefitted from tax reform and overall global growth remains in decent shape.

The strength of the US economy has enabled the Federal Reserve to raise interest rates and this has in turn boosted the US dollar and hampered confidence in some of the more fragile emerging markets.

Mixed UK economic data has delayed the anticipated gentle normalisation of domestic interest rates, but a rate hike is still expected before year end which has helped subdue UK fixed income returns in 2018.

After a challenging first quarter, most equity markets achieved good growth in Q2, resulting in mainly positive returns over the half year period and a number of all-time market peaks reached. UK equities had a
particularly poor start to the year, but Q2 gains of 9.2% left first half returns at 1.7%.

Currency moves enhanced international equity returns for UK investors to 6.7% in Q2, taking 2018 gains to 2.2%. US equities led the way over both periods, boosted by their strong economy and strength in technology shares and the dollar. Emerging markets strong recent run reversed somewhat in Q2, seeing first half losses of -4.5%.

UK Equities recover in Q2

Performance over the last six months

Annualised discrete performance (%)

Within broadly flat UK fixed income markets government bonds achieved Q2 gains of 0.2% and a first half return of 0.4%, whilst index-linked gilts and corporate bonds saw modest losses.

In commercial property, despite signs of weakness in the retail sector, income and strength in the industrial sector continued to be the main drivers of returns, with an estimated first half gain of 3.9%.

With the UK interest rate still at 0.5% the returns from cash deposits remained very low and still well below the level of inflation.

A pleasing aspect to the last quarter was the recognition received for the good relative investment performance our funds have seen over the last 3 years, which led to two of our funds making the shortlist for the prestigious Fund Manager of the Year awards.

Emerging markets struggle in 2018

Performance over the last six months

Annualised discrete performance (%)

Paul Glover

Paul Glover

Chief Investment Manager

Joined NFU Mutual after graduating from Birmingham University in 1986 with a degree in Money, Banking & Finance. Paul soon began to specialise in overseas equity markets and headed up the International Equity desk from 1992 until 2010. Now in overall charge of the investment department as Chief Investment Manager. Role & Responsibilities: Directs overall investment strategy and oversees the smooth running of the investment department.

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