Q3 Newsletter

Only a few years ago, interest rates were close to zero, bond yields were at historic lows and energy was cheap. Cheap money, it turns out, was a phase rather than a law of nature. Today, long-term UK and US government bond yields are above 5%, energy is once again feeding inflation and governments are wrestling with the cost of servicing debts that were run up when borrowing was almost free. At the same time, the US and China are locked in a technological arms race that demands enormous investment in computing power, energy and infrastructure.

The investment landscape has changed, and the third quarter provided plenty of evidence. Andy Burnham entered Number 10, the Federal Reserve raised interest rates and energy prices moved sharply higher. Most significantly, long-term bond yields kept rising as markets weighed resilient growth, persistent inflation and increasingly uncomfortable levels of government borrowing.

Against this backdrop, our portfolios have made good progress. Year-to-date, Income has returned 2.6% (1), Higher Income 5% (2), Balanced 7.4% (3) and Growth 10.3% (4), while Global Blue Chip returned 12.9% (5) and Global Solutions 13.4% (6).

These returns compare favourably with our peer group benchmarks. Current estimates show ARC Cautious at 2.5%, ARC Balanced 5.6%, ARC Steady Growth 7.3% and ARC Equity Risk 9.2% (7). Investors willing to take more equity risk have been well rewarded, while our lower-risk strategies have continued to make positive progress.

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