RNPFN With-profits fund management and performance report

Investment returns from higher risk investments were weak and volatile during 2018. Returns from global equities (as measured by the MSCI All-Country World index) were -7.2% in local currency terms; this was dampened as the pound weakened against overseas currencies resulting in a slightly improved return of -3.3%.

UK corporate bonds generally held up better, whilst core government bonds had mixed fortunes: US Treasury and UK Gilt yields rose while German Bund yields fell.

With the persistent political uncertainty throughout most of 2018, investors tended to prefer to focus on the still-robust corporate and macro (where capital is spread over various assets, markets and countries) investments. This was especially prominent in the US, where tax cuts boosted an already-strong economy.

From the autumn onwards, however, markets were increasingly rattled by a range of factors. In addition to an overarching concern about tightening monetary conditions, these included rising political uncertainty in Europe and in the US, President Trump’s tariff war against China and other US trading partners, and, related to the latter, evidence of economic deceleration in the eurozone and China. Higher risk investments suffered in this environment and had a very weak final quarter.

The US Federal Reserve raised rates four times over the year but further rate rises in 2019 are unlikely. In December the European Central Bank finally ended its quantitative easing bond-buying programme, though any interest rate hikes still appear some way off. Despite ongoing Brexit uncertainty, the Bank of England raised rates once, in August, as the economy picked up after a weather-hit first quarter.

Equities in Europe, Asia and Japan all suffered double-digit losses in local terms, and the UK and emerging markets were not far behind. US equities fell less heavily over the year, due in part to earlier optimism about the tax cuts and very strong US corporate earnings.