A slight autumnal chill in the air
We are detecting a slight autumnal chill in the air. The US apart, recent data has been signalling a return to weaker growth, markedly so in Germany, the Eurozone's engine room. Investors' lack of appetite for risk was reflected in high-yield bonds, which fell by over 2%, while government bonds fell over the month but have since rallied as stockmarkets continued to slide. Property has remained a consistent performer, returning around 10% year-to-date.
Germany stumbles as the ECB's hands are tied
German industrial output suffered its biggest monthly decline in more than five years in August, raising fears that Europe's biggest economy might be heading for recession. It is too early to tell how soon Germany will benefit from a lower exchange rate, or just how badly the sanctions with Russia will affect business.
The ECB first excited markets by announcing a new policy of asset purchases, but then disappointed with a lack of clarity and follow-through. Market perception was that the ECB's hands were tied by a reluctant Germany and that it would struggle to implement sufficient measures to stimulate economic growth.
Growth intact but markets tire at a 14-year peak
At the start of the month the FTSE 100 peaked at a 14-year intra-day high of 6894, but this proved short-lived and the index ended the month down nearly 3%. The UK growth story remains intact, although there have been signs of a slowdown in both the housing and manufacturing sectors.
We still feel that all the stops will be pulled out to ensure happy voters ahead of the May election, and that even a rise in interest rates will be portrayed positively as a return to consistent growth. Meanwhile, the Scottish referendum injected further volatility into an already uncertain market backdrop.
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
A tricky market call as the US tapers and Europe falters
The market call is a tricky one. This sell-off may be no more than those experienced several times during the year, generally followed by another leg higher. But markets are looking tired and will no longer be able to rely on the US asset purchase programme as the Federal Reserve brings its quantitative easing to an end.
We still believe that the greater risk lies in a more meaningful correction and would look to use this opportunity to buy funds at the lower levels. The emerging market sector might suffer some turbulence as the Fed's tapering concludes, but we believe that it still represents good value over the longer term. Our core Asian fund significantly outperformed the sector, falling by less than 1% against an index fall of 5.7%.
Markets are looking tired and will no longer be able to rely on the US asset purchase programme.
We remain under-weight fixed income funds, preferring the higher yield offered on commercial property and the lower volatility of absolute return funds. We made several fund switches during the month to improve positioning.
Switching into Woodford Equity Income
In equities we switched the Invesco Perpetual High Income fund into Neil Woodford's new Woodford Equity Income fund.
Reducing volatility by exiting technology
On our higher-risk funds we took advantage of a resolute technology sector to sell the remainder of our tech funds, switching into less volatile absolute return funds.
Positioning for rising rates in fixed income
We have continued to change the composition of our fixed interest content, reducing our strategic bond position on our lower-risk portfolios in favour of bonds that will benefit from rising interest rates.
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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