Within our investment process we have two building blocks. The first, which we call Neutral Asset Allocation (NAA), sets longer-term asset allocations. The second part, which we call Dynamic Asset Allocation (DAA), allows us to exploit shorter-term opportunities, diversify portfolio risk, and protect the portfolio against capital drawdowns.

Fund Positioning

Within our investment process we have two building blocks. The first, which we call Neutral Asset Allocation (NAA), sets longer-term asset allocations. The second part, which we call Dynamic Asset Allocation (DAA), allows us to exploit shorter-term opportunities, diversify portfolio risk, and protect the portfolio against capital drawdowns.

Based on current asset class valuations, which we address in our most recent NAA review here, we believe corporate credit and equities are unattractive over a five-year horizon. Equity valuations in most major developed market countries remain high and we see risk being very predominately on the downside. As such, the NAA is currently positioned to protect capital, and under this defensive configuration, we expect a modest return of just under 3%. We see more return opportunity in our alpha signals and are therefore allocating the majority of our risk to the DAA to maximise the probability of meeting the Fund’s objective of RPI +4%.

Market Review

Turkey dominated headlines, with the currency falling 24% over the month. The move impacted wider emerging markets, with EM local bonds down -6% for the month. Equities had a mixed month, with US stocks stronger while European, UK, Japan, and emerging market equities all fell between -1% and -4%.

Performance Review

The Fund fell by 4.4% over August 2018. Over the month the Neutral Asset Allocation added 0.1%. Positive contributions from government bonds and foreign currency exposure were offset by falls in the value of local currency emerging market bonds.

Over the month Dynamic Asset Allocation detracted -4.5% which was spread across bonds, currencies and equities. Within our DAA, positions informed by our equity Signals detracted 1.3%. This was driven by long positions in Italy and the UK, which we believed are attractive on valuation, momentum and market structure factors. Italy and the UK fell over the month due to budget and Brexit concerns, respectively. Bond signals detracted 1.7% due to long Italy-German spread positon (valuation and carry factors) and a short in US rates. Finally, positions from currency Signals detracted 1.5% which was mainly due to Turkish Lira which we believed was attractive on carry and macro-economic factors. This position was closed early in the month.

Performance

Annual Net Performance (% in GBP) to 31 August 2018

Cumulative Net Performance (% in GBP) to 31 August 2018

Calendar Year Net Performance (% in GBP) to 31 August 2018

These figures refer to the past. Past performance is not a reliable indicator of future results. For investors based in countries with currencies other than GBP, the return may increase or decrease as a result of currency fluctuations. Since inception performance figures have been calculated from 23 June 2015. All performance data for the First State Diversified Growth Fund Class Z (Accumulation) GBP as at 31 August 2018. Source for fund - Lipper IM / First State Investments (UK) Limited. Performance data is calculated on a net basis by deducting fees incurred at fund level (e.g. the management and administration fee) and other costs charged to the fund (e.g. transaction and custody costs), save that it does not take account of initial charges or switching fees (if any). Income reinvested is included on a net of tax basis. Source for benchmark - ONS, income reinvested net of tax.

Fund Activity

Highlights:

  • No changes to the Neutral Asset Allocation
  • Changes within Dynamic Asset Allocation:
    • Early in the month (August 10) the position in Turkish Lira was closed 
    • Increased exposure to emerging market equities
    • Reduced overall portfolio duration

 

Market Sensitivities

The Fund is at the lower end of ex-ante risk, with a low allocation to equities. The table below provides Fund sensitivities to potential broad market movements. 

Data source: This information is calculated by First State Investments.
Market sensitivities measure the expected portfolio gain or loss in the event of broad market moves, for example the FTSE rising or falling by 10%. The figures refer to simulated past performance. Past performance is not a reliable indicator of future performance.
Investment Signals: Qualitative investment ideas that are quantitatively verified and validated. They provide quantitatively measurable attractiveness indicators within a specified investable universe.

Risk Analysis

Asset Allocation

Data source: This information is calculated by First State Investments.
* Duration contribution measures interest rate sensitivity; for example, a duration contribution of 5 means that the portfolio impact of a 1% point move down in interest rates will have a positive impact of 5% on the portfolio. * Currency exposure measures the net exposures to other currencies than the base currency.

Risk and Returns

Portfolio ex-ante risk contribution by sector

LC: local currency. HC: hard currency.
‘Ex-ante risk contribution’ measures the forward looking expected portfolio volatility, both at a Fund level (black line) and for each sector contribution. Official Fund performance may differ to performance contribution due to variations in pricing sources, timing and fees, taxes and currency hedging various share classes.
Data source: This information is calculated by First State Investments. 

Important Information 

This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered and does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision. This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.  

This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this information.  

References to "we" or "us" are references to First State Investments. 

In the UK, this document is issued by First State Investments (UK) Limited, which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB, number 2294743. Outside the UK within the EEA, this document is issued by First State Investments International Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, Midlothian, EH2 1BB, number SCO79063.  

The fund is a sub fund of First State Investments ICVC ('the Company'), which is an investment company with variable capital incorporated in England and Wales. The Company is structured as an umbrella company. Each fund may issue different classes of share and within each class there may be different types of share.  

Detailed information about the Company and its sub funds is contained in the Prospectus and Key Investor Information Documents which are available free of charge by writing to: Client Services, First State Investments (UK) Limited, Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB; or by telephoning 0800 587 4141 between 9am and 5pm Monday to Friday; or by visiting www.firststateinvestments.com. Telephone calls with First State Investments (UK) Limited may be recorded. 

Representative and Paying Agent in Switzerland: The representative and paying agent in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland.  

First State Investments (UK) Limited and First State Investments International Limited are part of Colonial First State Asset Management ("CFSGAM") which is the consolidated asset management division of the Commonwealth Bank of Australia ABN 48 123 123 124. CFSGAM includes a number of entities in different jurisdictions, operating in Australia as CFSGAM and as First State Investments elsewhere. The Commonwealth Bank of Australia ("Bank") and its subsidiaries do not guarantee the performance of the fund or the repayment of capital by the fund. Investments in the fund are not deposits or other liabilities of the Bank or its subsidiaries, and investment-type products are subject to investment risk including loss of income and capital invested.

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