Investment Report for March 2016

OVERVIEW

Markets recovered their poise in March, recovering a little from heavy falls earlier in the year. There is a feeling that the gloom about China has been overdone and indeed, the latest numbers coming out of the country are positive, with exports staging a recovery.

The better mood is reflected in the FT100 share index which rose by 0.8% over the month.

From here on in its all about “Brexit”. Sterling is steadily falling on the foreign exchanges which means that the value of overseas investments is rising. This is the same effect as the weaker pound making foreign holidays more expensive. Overseas markets weren’t especially positive apart from the US, but once translated into our weaker currency the effect is obvious.

Thus, the S&P500 rose by +6.5% and the Eurostox50 increased by +1.8% over the month.

The US and Emerging markets were strong boosted by the thought that the US would be slower to increase its interest rates.

Gilts and Corporate Bonds (fixed income securities) turned in reasonable returns but high yield bonds (the riskiest) made a strong recovery, gaining +3.0% over the month. This reflected the fact that these securities were priced for recession and as the economic outlook improved (what with good news from China) so did investment values.

UK commercial property grew by a modest 0.3%, which implied no capital growth, but receipt of rental income only. The London market is driven primarily by overseas buyers and these investors have stepped onto the side lines pending the outcome of the EU referendum.

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

All portfolios produced decent gains in March as markets recovered previous losses.

Income Portfolio

The Income Portfolio gained +1.4% in March under-performing the benchmark (the average mixed investment (20-60% shares) fund) which gained +2.0%. However, over one year our out-performance is startling; we gained +5.4% compared with the benchmark which fell by -2.4%.

Our exposure to UK commercial property held us back over the month but returns were boosted by a recovery in corporate bonds, whose values had been predicting recession.

There were no changes to the portfolio during the month.

Balanced Portfolio

The Balanced Portfolio gained +2.2% in March in-line with its benchmark (the average mixed investment (40-85% shares) fund) which also gained +2.2%.

Our exposure to UK commercial property held us back over the month, but returns were boosted by a recovery in corporate bonds, whose values had been predicting recession. Emerging markets also staged a comeback and all overseas funds were boosted in value as Sterling weakened on the foreign exchanges.

There were no changes to the portfolio during the month.

Tactical Portfolio

The Tactical Portfolio gained +3.4% in March out-performing its benchmark (the average Flexible fund) which gained +2.4%.

The fund performed well due to our high allocation to Asia and Emerging markets.

There were no changes to the portfolio during the month.

 

THE OUTLOOK

Global equity market values are currently determined by the outlook for the Chinese economy and the price of oil. The latest data from China looks more optimistic, with exports increasing and house prices rising, this has supported global equity valuations.

On the other hand, the price of oil has fallen again as the OPEC countries have once again failed to agree sales quotas. It is ironic that a weak oil price is bad for the markets, as overall cheaper oil represents a global boost for consumers.

The short-term outlook for equities in the UK is now driven by the impending EU referendum. This “binary” event will be probably be bad for the UK stock market if we vote to leave the EU. However, the actual outcome is not clear to me as we suspect that if we vote to leave then Sterling will take a pounding on the foreign exchanges. This would actually be supportive of the UK stock market as 70% of the earnings received by UK companies is earned overseas. If Sterling falls then the value of these earnings increases.

I am confident regarding the impact on our currency. This cuts both ways, as if we stay in the Eurozone then there would be a negative impact on the value of overseas investments. Sterling will rise and this would devalue such investments. It is for this reason that would are looking to repatriate overseas investments in the run up to the referendum and lock-in the 10% currency gain enjoyed thus far.

If the UK leaves the Eurozone this could be negative for investments in Europe. The future of the EU itself could be in doubt.

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”.