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OVERVIEW
July was a poor month for a UK based investor mostly due to the strength of Sterling, which reached a five month high against the US dollar. A stronger pound reduces the value of overseas investments and foreign earnings, so with 2/3rds of the earnings in the UK market coming from overseas operations this strength was a drag on returns.
The poor performance was in spite of a strong US market which continues to make progress, due to strong economic numbers across the pond.
Elsewhere, European markets were weak, as whilst the European Central Bank cuts interest rates there was none of the monetary stimulus which had been expected. This was in spite of economic activity in the Eurozone continuing to pick up last month, with an influential poll of purchasing managers showing the region is on course for its strongest quarter of growth for three years.
The UK market was also surprised by the latest Chamber of Commerce survey results, which despite remaining high by historical standards, dropped compared with results from the survey for first three months of the year.
John Longworth, director-general of the BCC, said the declines came after the economy “jolted forward” at the start of the year and indicated that it had “settled into a period of more stable growth”.
Economists are also fretting over the timing of a first interest rate rise.
Fixed interest securities made modest gains in July and commercial property continued to move ahead with confidence.
STOP PRESS
At the time of writing all the world’s markets have the jitters following the Malaysian Airline crash in the Ukraine.
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
Here follows tables showing the performance of the portfolios over various periods of time to the end of June;
Short-term Performance
| Parmenion Portfolio/Index | One monthPerformance to 30 June 2014 | One year performance to 30 June 2014 |
| Income Portfolio | -0.2% | +9.7% |
| Average Mixed Investment fund (20-60% shares) | -0.3% | +7.0% |
| Balanced Portfolio | -0.5% | +8.8% |
| Average Mixed Investment fund (40-85% shares) | -0.5% | +8.1% |
| Tactical Portfolio | -1.0% | +10.6% |
| Average Flexible Investment Fund | -0.3% | +7.8% |
| MSCI UK | -1.2% | +12.7% |
| MSCI World (£) | 0.0% | +9.8% |
| IBOX Gilt | -0.5% | +2.4% |
Long-term Performance
| Parmenion Portfolio/Index | Three year performance 30 June 2014 | Five year performance to 30 June 2014 |
| Income Portfolio | +24.7% | +72.8% |
| Average Mixed Investment fund (20-60% shares) | +16.9% | +46.4% |
| Balanced Portfolio | +21.7% | +71.0% |
| Average Mixed Investment fund (40-85% shares) | +20.0% | +60.5% |
| Tactical Portfolio | +19.5% | +78.1% |
| Average Flexible Investment Fund | +16.5% | +60.7% |
| MSCI UK | +26.7% | +89.2% |
| MSCI World (£) | +31.6% | +94.0% |
| IBOX Gilt | +16.9% | +29.7% |
(Source; Parmenion Capital Partners LLP)
PORTFOLIO REVIEW
All Portfolios
All portfolios lost modest sums in June, mostly due to the strength of Sterling which reduced the value of overseas investments. Fixed-interest securities made modest gains and commercial property continued to progress.
Income Portfolio
The Income portfolio lost -0.2% in June marginally out-performing its benchmark (the average mixed investment (20-60% shares) fund) which fell by -0.3%.
Our holdings in UK commercial property helped offset a general weakness in equities.
Balanced Portfolio
The Balanced portfolio lost -0.5% in line with its benchmark (the average mixed investment (40-80% shares) fund) which also fell by -0.5%.
Our holdings in UK commercial property helped offset a general weakness in equities.
Tactical Portfolio
The Tactical portfolio had a poor month falling by -1.0%, under-performing the benchmark (the average flexible fund) which fell by -0.3%.
Our focus on Emerging markets and Asian shares boosted returns, but losses in Europe and the US due to currency movements more than offset these gains.
OUTLOOK
The Dow Jones Industrial Average has ended the week above 17,000 points for the first time; all sectors of the UK economy are powering ahead. It’s a shame these gains were turned into losses due to the strength of Sterling.
What galvanized world markets most was the creation of 288,000 jobs in the US in June, well above forecasts, plus an upward revision in the May estimate. This has calmed nerves that were tested when the American economy was judged to have shrunk heavily in the weather-hit first quarter.
The American economy is standing up well to the reduction in quantitative easing, which should be brought to a welcome halt well before year end.
Here in the UK all sectors of the economy were performing well in June and there is no doubt that the second quarter will show strong economic growth. Business information provider Markit says services, manufacturing and construction all recruited more staff last month and created 400,000 jobs in the second quarter.
Investment managers report that It is increasingly difficult to find shares that look seriously undervalued, which is why we are diversifying into other areas, especially commercial property, where good value can be found. However, the stock market still offers value to investors, particularly for income generation where yields of 3.5-4.0% are available.
We are cautiously optimistic about the markets as economic growth is now strong in the US and UK and appears to be picking up in Europe. The Chinese economy could derail this progress if the Chinese suffer a property collapse, which is on the cards unfortunately. Meantime we continue to diversify portfolios and maintain a focus on higher yielding defensive equities which tend to perform better if the markets turn sour.
Fact-sheets
The up-to-date fact-sheets are now available for the three Parmenion portfolios, covering the period up to the end of Q2. They can be found at this page.
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.
