OVERVIEW
March was another weak month in the markets with the UK 100 share index dropping by 2.5%. Investors have been given plenty of reasons to sell equities this year: US Fed “tapering”, a rout in emerging markets currencies, Ukraine’s political crisis, slowing Chinese growth and disappointing corporate profits have all caused wobbles.
Yet each time there’s a fall, markets have picked themselves up, given themselves a dusting down and moved on towards new highs. With bulls so firmly in the ascendance, investors have apparently been seeing these market dips merely as buying opportunities rather than the onset of a correction.
Overseas, Asian and Emerging markets were strong this month after a long period in the doldrums, with cheap valuations attracting interest.
Commercial property continued its march forward with another month of gains. The recovery in prices seems to be spreading out of London and is starting to impact on other regional city centres.
The big economic news domestically last month was that UK inflation has fallen to its lowest level in more than four years…with the added bonus that the economy now looks to be recovering well. The Office for National Statistics revealed on Thursday that retail sales grew strongly in February with volumes well above market expectations – up 3.7% year on year and 1.7% ahead of January.
We are now pretty nervous about the situation in the Ukraine, but previous experience of investing through wars around the world is that any set-back will be temporary.
Here is the chart of the FTSE 100 index for the last six months; you can see how volatile things have become this year;
…and the last five years, which puts things in perspective;
FUND PERFORMANCE
I enclose tables showing the performance of the portfolios over various periods of time to the end of March;
Short-term Performance
Long-term Performance
(Source; Parmenion Capital Partners LLP)
PORTFOLIO REVIEW
All Portfolios
Portfolios either trod water or made modest gains during March. The UK market was weak but Asian and Emerging markets rallied which helped. UK commercial property made modest gains along with fixed income securities.
Income Portfolio
The Income portfolio trod water in March posting a “no change” outcome. This out-performed the benchmark (the average mixed investment (20-60% shares) fund) which fell by -0.3%.
Our focus on UK commercial property boosted returns in what was a poor month for UK equities.
No changes were made to the portfolio this month.
Balanced Portfolio
The Balanced portfolio grew by +0.7% during March out-performing the benchmark (the average mixed investment (40-85% shares) fund) which fell by -0.6%.
Our focus on high yielding blue-chip equities detracted from returns but our positions in overseas equities & UK commercial property more than offset these losses.
No changes were made to the portfolio this month.
Tactical Portfolio
The Tactical portfolio increased in value by +0.8% in March out-performing the benchmark (the average flexible fund) which fell by -0.4%.
Our focus on Emerging market and Asian shares boosted returns and more than offset the weakness in UK equities.
No changes were made to the portfolio this month.
OUTLOOK
When balancing up the potential risks and rewards of markets, no conversation is complete without discussion of the Chinese economy. The mood appears to be on the turn this week. The “great stall of China”, as the current dip in Chinese activity may or may not become known is starting to weigh on sentiment.
Data relating to industrial production, investment and retail sales all proved weaker than expected. This, combined with a warning from China’s premier on rising debt defaults has raised concerns that the region faces a slow-down at best, or a melt-down at worst. Mr Keqiang said that China was likely to see an “unavoidable” rise in defaults on bonds and other financial products as authorities push through much-needed financial market deregulation.
The Chinese economy is the driver of a large part of the economic activity in Asia; if China sneezes the rest of Asia catches a cold.
Despite this, my cautiously optimistic view of the global economy remains intact. In general, we retain our preference for developed over developing markets. The US, despite a number of disappointing data points, should continue to see underlying demand improve through 2014, with trends in fiscal policy, household deleveraging and investment-led growth all moving in the right direction.
Reassuring remarks from Federal Reserve chairwoman Janet Yellen, who stressed on Monday that loose monetary policy was “still needed and will be for some time to come”, given that there was considerable slack in the US labour market, have been supportive of the view that markets will be on a positive tack for some time yet.
The UK and Japan are also displaying definite signs of progress although both have question marks hanging over them. Suspicions linger that the recovery in the UK is fuelled by little more than household spending at the expense of household saving, while there seems little sign that Japan is yet to properly address its structural deficiencies. Even Europe, despite the problems south of the ‘olive belt’ saw growth accelerate to a two-year high at the end of 2013.
The ECB did not alter its main interest rate last month, but there has been much chatter about the chances of it taking some measure – perhaps asset purchases – to boost growth. We believe that there will be action here which is why we are over-weight in European equities.
Meantime we’re looking to up our allocation to commercial property which is steaming ahead nicely. Without wishing to mix too many metaphors, commercial property moves like a super tanker; once underway it takes a long time to change course.
This concludes the Investment Report April 2014 (for March 2014).
PS
Don’t forget the usual risk warning for all long-term investments; the value of units can fall as well as rise, and past performance is no guarantee of future performance. The value of income payments from investment funds is not guaranteed and can fall as well as rise.
