Commentary on February 2014
Market Overview
Stockmarket volatility continued with the S&P 500 index hitting a new high and the FTSE closing at its highest level since the credit crunch.
However, investors remained wary at these levels and markets had already slipped from the highs before the escalating tension in Ukraine sent equities sharply lower. Share prices subsequently retraced most of their losses as Putin pressed the ‘Pause’ button, ordering his troops to pull back from the borders.
Presenting the Bank of England’s Quarterly Inflation Report, Governor Carney was pretty emphatic that they were in no rush to raise rates (read Spring 2015 as a likely starting place) and that even then the pace of rises would be slow and the peak could be considerably lower than on previous occasions.
Despite UK house prices continuing to push ahead, the case for no change in interest rates was supported by UK inflation falling to 1.9%, the lowest since November 2009.
Our Views
Our views remain similar to last month’s, namely:
The UK economy in particular looks to be in good shape and for now looks less vulnerable than most other developed economies.
We’re a bit more cautious on the US where the economic data has been more mixed and some companies failed to match their earnings forecasts.
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 rose marginally in February but in our view still remain too low to compensate for the risk of capital loss; we think that property currently offers better returns.
Technical indicators suggest that we might have seen the worst of the fall in gold prices and the price action is starting to look more positive.
How are we currently positioned?
On our lower-risk portfolios we continue to prefer a blend of equity income, property and absolute return funds to fixed interest assets.
We took advantage of the rally in UK shares to further reduce our exposure to equities, switching into the less volatile Insight Absolute Return fund.
During the month we increased our exposure to the Standard Life UK Property fund which is looking to benefit from demand for commercial property expanding from the South-East.
We still believe that there’s more mileage in Japanese and Asian equities. Emerging markets continue to offer good value going forward.
Our small weighting in gold and commodities has continued to serve us well during this more recent spate of volatility.
