Investment Report for November 2015

OVERVIEW

After the drama of August, September and rebound in early October, markets were somewhat more subdued in November. To be honest, it has been the most boring month we can remember in a long time!

The UK stock market returned a modest +0.3%. As we have outlined previously, attention is beginning to focus on the referendum on the UK’s membership of the EU which is pencilled in for June or September of 2016. Uncertainty is likely to defer investment in the UK by Corporations and this may have a significant impact on growth and financial markets in the short term.

A December 16th lift off in US interest rates is now seen as an almost certainty. The first estimate of economic growth for Q3 was revised sharply upwards from 1.5% to 2.1% during November. This stronger growth combined with robust consumer spending suggests that the economy has not been as affected by market events in China as feared and should give the Fed confidence to raise rates. Having said that, we have been here before.

Markets now widely expect an extension to the Quantitative Easing (QE) programme by the ECB, perhaps via an extension to the QE period or by relaxing the rules as to which securities which may be purchased under the programme. The slow and gradual recovery in the Eurozone is expected to continue with GDP growth estimated to be 1.5% this year and forecast to be 1.6% next year.

Fixed Interest securities made modest gains in November as did UK Commercial property. Perhaps the two year revaluation of the commercial property market is drawing to a close.

Stop Press

Mario Draghi, president of the ECB, announced further Quantitative Easing last week. However, the additional stimulus was less than markets were expecting, as a result of which the European markets in particular all sold-off hard. There is a general feeling that the ECB needs to more to get the European economy back on track.

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 built on the recovery that started in October and made modest progress in November.

We adjusted portfolios in early November and took on additional risk, especially in our higher-risk mandates. We bought Asia and the Emerging Markets as these are now very cheap.

Income Portfolio

The Income Portfolio gained +0.8% in November and out-performed its benchmark (the average mixed investment (20-60% shares) fund) which gained +0.5%.

The out-performance is attributable to strong performance from our largest holding – the Artemis Global Income Fund, which enjoyed an excellent month.

In early November we sold a UK tracker and bought the recently launched Woodford Income fund, now this has established itself as a strong performer.

Balanced Portfolio

The Balanced Portfolio gained +0.9% in October and just out performed its benchmark (the average mixed investment (40-85% shares) fund) which gained +0.8%.

Our overseas investments in both the US and Europe contributed to returns.

In early November we sold a UK tracker and bought the recently launched Woodford Income fund, now this has established itself as a strong performer. We also tidied up a small residual holding in M&G Optimal Income fund adding to the 24 Dynamic Bond fund which continues to perform well.

Tactical Portfolio

The Tactical Portfolio gained +0.7% in October but under-performed its benchmark (the average Flexible fund) which grew by +0.9%.

The under-performance is attributable to our increased exposure to Asia and the Emerging markets and holdings in smaller company shares which have served us well over the year to date.

In early November we made a call on the Asian and Emerging Markets and bought these significantly as valuations are now very low in these regions. The low valuations reflect concerns about future hikes in US interest rates, but we feel that this issue is now “in the price”

OUTLOOK

2015 has been a pretty drab year for the markets. We have managed to eke out small positive returns for investors as the outlook for growth around the world has deteriorated.

One issue that has certainly affected valuations globally is the oil price. Long-term, lower oil prices are a good thing for consumers world-wide, unless you work in the oil industry. However, over the short-term the low oil price has dented the markets in a less obvious way; many Middle Eastern oil producing countries are huge investors; the weak price of oil has forced them to “cash-in their chips” and withdraw funds from long-term investments of all types.

The selling activity by the Oil Sheiks has added a general decline in sentiment. I’m hoping for better things next year, where bizarrely, a hike in the price of oil might actually be a positive factor.