Volatility continues with more variety
Stockmarket volatility continued this month but with more variety than last. Emerging markets fared better than the developed world, where Europe and Germany in particular fell as the Crimean crisis escalated before rallying towards the quarter-end. European shares rallied hard when a German member of the ECB gave the strongest hint yet of the possibility of a European quantitative easing programme, but the UK stockmarket remained close to the month's low. Key manufacturing surveys showed an easing of the recent strong trend, and inflation continued to fall across the developed world.
A new Chair and an air of confusion
The new Chair of the Federal Reserve, Janet Yellen, began her reign with an air of confusion. At the monthly meeting of board members she prompted fears of an earlier than expected start to interest rate rises, but she ended the month in a more conciliatory manner, saying that there was considerable slack in the economy and that the Fed would continue to support the recovery for "some time to come".
US investors were unfazed by a further $10 billion a month of quantitative easing tapering, and the S&P 500 ended the quarter just below its recent record high. Meanwhile, across the Atlantic, the strongest hint yet of a European QE programme came from a German member of the ECB, sparking a sharp rally in Continental shares.
ISAs and annuities steal the Budget show
The UK Budget was a pretty mundane affair until the Chancellor announced changes to ISAs and annuities. This could be seen as an attempt to right a significant historic wrong, or as a cynical move to boost consumer morale and spending ahead of next year's general election.
The UK economy looks to be in good shape and for now appears less vulnerable than most other developed economies. Chancellor George Osborne will do his utmost to ensure a period of strong growth ahead of the 2015 vote.
A note from the desk
I am pleased to share our monthly update on market events. The overview seeks to summarise market movements together with our views and the rationale for the positioning of investments going forward. As always, should any aspect of this commentary prompt a question, we would welcome the conversation.
Martyn Charlwood · Managing Director
Cautious on bonds, opportunistic on corrections
We are a little more cautious on the US, but this is a market hitting new highs and we will continue to remain invested for now. We expect further stockmarket corrections over the course of the year and will look to use a more meaningful sell-off as a buying opportunity.
Bond yields in our view still remain too low to compensate for the risk of capital loss; we think that property currently offers better returns. The ongoing search for income has driven the price of high-yield bonds to a level that no longer reflects the level of risk involved. For now this remains the most popular bond sector, but we are turning increasingly cautious.
Emerging markets are attracting more interest and continue to offer good value going forward. We remain comfortable with our small holding in gold and commodity stocks, although gold gave back some of its recent gains this month.
We expect further stockmarket corrections over the course of the year and will look to use a more meaningful sell-off as a buying opportunity.
On our lower-risk portfolios we continue to prefer a blend of equity income, property and absolute return funds to fixed interest assets. We made several switches during the month to improve our positioning.
Increasing equity exposure via UK funds
We took advantage of relative strength in technology funds to switch into the Artemis UK Growth and Standard Life UK Unconstrained funds. Part of this switch was funded from the partial sale of the Insight Absolute Return fund, resulting in a slight increase to our equity exposure.
Reducing high-yield bond risk
We halved our position in the Jupiter Strategic Bond fund, switching into the M&G Strategic Corporate Bond fund. Despite the similarity in fund names, the effect of this move was to reduce our exposure to high-yielding, low-rated bonds in favour of bonds with higher credit ratings.
Maintaining emerging market and commodity positions
Emerging markets continue to offer good value and are attracting more interest. We remain comfortable with our small holding in gold and commodity stocks, which we see as a useful diversifier within higher-risk portfolios.
Important information
This article is a marketing communication intended for general information only. It does not constitute personal advice, a recommendation, or an offer to buy or sell any investment. If you are unsure whether an investment is suitable for your circumstances, please seek personal advice.
Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise. Capital values are at risk and not guaranteed. Forecasts and views expressed in this commentary represent our assessment at the time of writing and are subject to change.
To discuss how this commentary applies to your own portfolio, we would welcome a conversation.
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