Investment Report for May 2015

OVERVIEW

 

May served up a mixed bag for investors with world markets moving in different direction or changing little.

 

The UK market made modest progress, with the FSTE 100 share index rising by +0.7% over the month. However, smaller companies did much better than this, spurred on by the General election which has produce a business friendly government for the next five years.

 

The markets were actually weak up to Election Day and then enjoyed a decent spurt as the results were announced. Inflation turned negative in May – something that hasn’t occurred in over 50 years.

 

The US market also made modest progress with the S&P 500 rising by +1.3%. Gains were enhanced by a strengthening US$. The US economy had a weak start this year due to adverse weather conditions and this, combined with other disappointing economic news, has damped expectations of a rise in interest rates in the near-term.

 

In Europe markets also posted modest gains, with the MSCI European index rising by +1.6%. This was in spite of increasing anxiety about the Greek situation and reflected a more upbeat feel relating to the overall economic climate.

 

Emerging markets were very weak, with falls of around -4.0% being typical. These markets suffered as the US $ strengthened and investors contemplated how the landscape would look when interest rates in the US started to rise.

 

The Japanese market was the best performing area of the world. The Nikkei rose by +5.3% on the back of strong economic growth.

 

Globally, fixed interest securities continued to be weak. Investors were conscious that interest rates in the US are likely to rise in 6-12 months’ time.

 

Commercial property made better progress in May, with resumed enthusiasm for city properties following the election and increasing rents throughout the UK.

 

Here is the chart of the FTSE 100 index for the last six months;

 

…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

 

Our portfolios made modest gains during the month, reflecting a reasonably positive UK equity and property market following the Tories’ election success.

Income Portfolio

 

The Income portfolio gained +1.0% in May, out-performing its benchmark (the average mixed investment (20-60% shares) fund) which gained +0.6%.

 

During May we reduced exposure to gilts switching into cash, as we felt the outlook for gilts has deteriorated

 

Balanced Portfolio

 

The Balanced portfolio gained +1.3% in May, marginally out-performing its benchmark (the average mixed investment (40-80% shares) fund) which gained +1.2%.

 

During May we reduced exposure to gilts switching into cash, as I felt the outlook for gilts has deteriorated. We also sold a long standing investment in the M&G Global Dividend fund, as the performance here has fallen away. We reinvested in Europe, thinking that the Euro was attractively valued.

 

Tactical Portfolio

 

The Tactical portfolio gained +1.8% in May, out-performing its benchmark (the average flexible fund) which gained +0.9%.

 

We sold a long standing investment in the M&G Global Dividend fund, as the performance here has fallen away and reinvested in Europe, thinking that the Euro was attractively valued.

 

 

OUTLOOK

 

The general outlook for the western world is pretty good; overall things are good with the exception of Europe which is picking up. At the same time the outlook for emerging markets has worsened due to the strength of the US$. Volatility has also increased in these regions for a variety of reasons and the markets of Brazil, Russia and China have all become very choppy indeed.

 

Our perception is that short-term the risks investors face are geopolitical. The Greek situation is but one example of this. Looking further ahead the challenge will be to cope with interest rates when they start to increase.

 

For the time-being we are taking a cautious line with plenty of exposure to property and cash.