Investment Report for June 2015

OVERVIEW

Markets in June were driven entirely by events relating to Greece and the possibility of a “Grexit”. In the run up to the last ditch negotiations, which ran on well into July, markets were weak in anticipation of a poor outcome.

Thus, the UK markets fell by -6.4% in June and the main global market index fell by -5.1%. Even the safe haven of gilts offered no protection with the main gilt index dropping by -1.8% and corporate bonds following suit will a fall of -2.7%.

The only investment that turned in a positive return in June was UK commercial property which produced a pleasing gain of +0.8%.

The issue of Greece (which now appears to have reached a positive outcome even after the “No vote” in the recent referendum) is very complex. Should Greece leave the Euro and default on its debts then a large number of the Eurozone’s banks would lose £billions and the countries making up the EU even more. Whilst the effect on the Greek economy would be a tragedy for its population, there would be modest impact elsewhere.

Long-term concerns surrounding the issue really focus on the political fallout of a Grexit; would this presage a breakup of the Eurozone, with other member states deciding it might be best to follow suit? The Eurozone could fall apart country by country.

In the end a deal has been done, as we all know, but the reality is that the Greeks have to be forgiven a significant part of their debts, as otherwise the country will never return to economic good health.

Here is the chart of the FTSE 100 index for the last six months. You can see the “Grexit” dip and subsequent recovery;

…and the last five years, which puts this into perspective;

FUND PERFORMANCE

Short-term Performance

 

Long-term Performance

(Source; Parmenion Capital Partners LLP)

 

 

PORTFOLIO REVIEW

 

All Portfolios

All portfolios suffered significant falls in June, reflecting global market weakness due to the Greek issue.

 

Income Portfolio

The Income Portfolio lost -2.5% in June but out-performed its benchmark (the average mixed investment (20-60% shares) fund) which fell by -2.9%.

The out-performance is directly attributable to our heavy over-weight in UK commercial property.

No changes were made to the portfolio this month.

 

Balanced Portfolio

The Balanced Portfolio lost -2.8% in June but out-performed its benchmark (the average mixed investment (40-85% shares) fund) which fell by -3.7%.

The out-performance is directly attributable to our heavy over-weight in UK commercial property.

No changes were made to the portfolio this month.

 

Tactical Portfolio

The Tactical Portfolio lost -3.4% in June but out-performed its benchmark (the average Flexible fund) which fell by -4.0%.

The out-performance is directly attributable to our modest exposure to UK commercial property and UK smaller company shares.

No changes were made to the portfolio this month.

 

OUTLOOK

It seems likely to me that the Eurozone will retain Greece for the time being as a fully (if non-paid up) member and the IMF will negotiate debt relief for the country. We could of course, be proved wrong. The immediate market impact has been a storm in a teacup. Longer-term we’re not at all sure that Greece should be in the Euro zone.

Looking further out we reckon Sterling will come under pressure against the Euro as our own referendum approaches.

There has been talk this month about increases in interest rates, both in the UK and US. Although this has the potential to upset markets the increases, when they come, are likely to be modest and slow. They are unlikely to scupper economic growth.

Of more concern is China. The domestic stock market has enjoyed a Government inspired boom followed by a crash. The significance is large enough to impact on the economy, already weakened by a property crash. If serious trouble for the world’s markets emerges we suspect that it will come from here, not from Europe.

 

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.