OVERVIEW
The second quarter of 2014 kicked off in much the same sluggish fashion as the first quarter. Equity markets continued to show limited signs of life, with the US and emerging markets finishing the month close to where they started. UK equities seemed to be the flavour of the month, as the FTSE 100 rebounded by 3.1% after losing ground in March.
In Europe, the gradual economic recovery remains patchy, as consumer and business confidence indicators continue to move slightly higher despite the ongoing unrest in Ukraine. Improving confidence comes at a time when the region’s inflation outlook continues to weaken. The concern here is deflation (falling prices) not inflation.
Fixed income investments made modest progress during the month, whilst two out of the three commercial property funds we use posted a useful gain of over 1.0%.
The main thing of note during April was the emergence if the “mega-merger” with US based Pfizer’s bid for our own Astra Zeneca. This contributed to the returns enjoyed during the month by UK investors as Astra’ is a main constituent of many UK focused investment funds.
Events in the Ukraine continue to unfold with markets waxing and waning with events on the ground and Putin’s latest utterances.
Here is the chart of the FTSE 100 index for the last six months;
…and the last five years, which puts things in perspective;
FUND PERFORMANCE
Short-term Performance
| Parmenion Portfolio/Index | One monthPerformance to 30 April 2014 | One year performance to 30 April 2014 |
| Income Portfolio | +1.0% | +6.6% |
| Average Mixed Investment fund (20-60% shares) | -0.3% | +3.2% |
| Balanced Portfolio | +0.5% | +5.4% |
| Average Mixed Investment fund (40-85% shares) | 0.0% | +5.0% |
| Tactical Portfolio | -0.1% | +7.5% |
| Average Flexible Investment Fund | -0.3% | +4.1% |
| MSCI UK | +3.2% | +9.1% |
| MSCI World (£) | -0.5% | +7.3% |
| IBOX Gilt | +0.7% | -3.0% |
Long-term Performance
| Parmenion Portfolio/Index | Three year performance to 30 April 2014 | Five year performance to 30 April 2014 |
| Income Portfolio | +23.2% | +77.5% |
| Average Mixed Investment fund (20-60% shares) | +15.0% | +48.9% |
| Balanced Portfolio | +20.4% | +75.2% |
| Average Mixed Investment fund (40-85% shares) | +17.5% | +61.4% |
| Tactical Portfolio | +17.4% | +78.3% |
| Average Flexible Investment Fund | +13.4% | +61.2% |
| MSCI UK | +24.8% | +91.0% |
| MSCI World (£) | +28.5% | +83.8% |
| IBOX Gilt | +17.2% | +28.6% |
(Source; Parmenion Capital Partners LLP)
PORTFOLIO REVIEW
All Portfolios
All portfolios made modest returns in April, out-performing their respective benchmarks. All asset classes enjoyed modest gains with shares, bonds and property gaining.
Income Portfolio
The Income portfolio gained +0.5% in April easily out-performing its benchmark (the average mixed investment (20-60% shares) fund) which fell by -0.3%.
Our focus on UK commercial property and high yielding equities boosted returns.
This month we sold a long-standing holding in one of L&G’s fixed-income funds as the manager resigned.
Balanced Portfolio
The Balanced portfolio gained +1.0% in April easily out-performing its benchmark (the average mixed investment (20-60% shares) fund) which posted a zero return.
Our focus on UK commercial property and high yielding equities boosted returns.
This month we sold a long-standing holding in one of L&G’s fixed-income funds as the manager resigned.
Tactical Portfolio
The Tactical portfolio fell by -0.1% just out-performing the benchmark (the average flexible fund) which fell by -0.3%.
Our focus on Emerging market and Asian shares boosted returns and more than offset a modest weakness in UK growth shares.
This month we sold our holding in Marlborough the UK Micropcap fund for a tidy profit. This was bought last August to capitalise on the change in ISA rules which allowed AIM shares to be included in an ISA and as hoped, produced a nice boost to this market segment.
OUTLOOK
We have been predicting some action by the European Central Bank for ages and it now looks like my forecast is going to come true. Mario Draghi, President of the ECB, made a statement last week to the effect that the ECB will act in June. The problem now facing the Eurozone is the spectre of deflation, with prices rising over the previous 12 months by only 0.7%. The currency is also too strong, impacting on exporting companies in the region.
We’re hopeful of a Euro version of quantitative easing which will deal with both issues and give a boost to the European stock markets. It would also have an impact on the UK market, as Europe is our largest trading partner.
Nearer home the phenomenon of the mega-merger is back. This is important as it signals that the markets are in full swing and a normal level of business confidence has returned. To me it marks the start of the end of the bull run in equities; there may be a year or two of more growth in share prices, but I will be slowly reducing exposure and de-risking portfolios for when the inevitable slow-down in activity comes.
You will have read that the Bank of England is worried about a housing bubble. We should all take notice, even if it is confined to London and the south east. The hope is that our regulators can engender a deflation without causing a burst!
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.
