Newsletter – February 2023

Welcome to our first bi-monthly newsletter, which aims to give you, our clients, a clearer insight into our business here at REALM.

As well as providing an update on our market views and thoughts on future economic and market trends, we also wish to provide deeper clarity about our investment choices and update you on any new products or services we are offering.

We will also use this newsletter to share the latest goings on at REALM, whether that’s by providing links to our regular blogs, profiles so that you can get to know our team better, or any changes to our growing business.

We would also welcome your input, so please let us know if there are any particular topics you’d like us to cover by emailing us at info@realmim.com. We’d love to hear from you and hope that you enjoy gaining a clearer insight into your REALM investments.

Eugene Lawlor

Market views and outlook

Both the global equity and bond markets enjoyed a strong start to the year, with gains being fuelled by expectations that economic data was starting to indicate a decline in global inflation.

In our view, global bonds are likely to rally further and we remain positive on both government and corporate bonds.  However, after January’s rally it is likely that equities may retreat slightly in the near term, but with valuations outside of the US trading at attractive levels we hold a positive view on equities overall.

European equities perhaps provide the most attractive opportunity of major global markets,  with global market leaders trading at a discount to their US counterparts. Meanwhile, Europe’s effort to drag itself away from Russian energy supply is yielding positive results and corporate balance sheets remain in a good shape and present an attractive investment opportunity. Accordingly, we have increased our portfolios’ weighting to European large-cap equities.

That said, we remain cautious about small capitalisation companies on both sides of the Atlantic and have also started to reduce our portfolios’ exposure to both direct commodities and their related investments.

Read our latest market commentary in full.

Getting to know your investment portfolio: UK Large Caps

Given the UK is the ‘home’ market for many of our clients, it is a key investment area for our portfolios. It currently faces several economic challenges – low or potentially negative growth, high inflation and rising interest rates.

With this in mind, we believe now is the time to focus our UK allocation towards the large-cap end of the market capitalisation spectrum, which enjoys greater exposure to global markets and overseas revenues (according to FTSE Russell, over 80% of FTSE 100 earnings are sourced outside the UK¹).

Despite the FTSE 100 hitting an all-time high in early February, we continue to see value in UK companies versus their US peers. The average price/earnings ratio – a useful metric for measuring a company’s value – is currently around 14 for FTSE All Share companies versus over 19 for S&P 500 companies, although this measure is slightly distorted by the presence of more expensive growth stocks in the US index.

We also see a similar pattern when we look at individual sectors. For example, mining stocks in the UK not only have a lower valuation than their US counterparts, they also tend to offer a much higher dividend.

To reflect our views, we have selected a UK Large Cap strategy for our portfolios that applies a high conviction, concentrated approach to stock selection that is not beholden to benchmark weightings. The management team uses macroeconomic and thematic research to identify key trends, along with the usual economic and investment cycles, to inform their investment decisions. This approach ensures the portfolio benefits from structural trends that can persist for long periods of time.

Find out more about the current positioning of our portfolios.

¹ https://www.ftserussell.com/blogs/overseas-revenues-boon-ftse-100-performance

And another thing… active cash management

Many of you have trusted REALM to actively look after your investment portfolios over the long term. But to what extent do you take a similarly active approach to looking after your cash deposits?

While this may have been less of an issue during the decade of zero interest rates, times have changed considerably. With the Bank of England’s base rate reaching a 14-year high at 4%, many savings accounts have seen their interest rates rise as well.

To make sure you don’t miss out on this improved savings situation, we have partnered with an FCA-regulated Cash Management Platform that will allow you to gain access to the whole savings market within a single account.

Please speak to us if you’d like to find out how you can improve returns and reduce risk on cash deposits, with minimal effort. 

Would you like to know more about a topic covered in this newsletter?
Email us at info@realmim.com

Disclaimer: ‘Where the business has expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. The information contained within this communication is believed to be reliable but Realm Investment Management Limited does not warrant its completeness or accuracy.

This communication is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell investments.’