Commentary on March 2015
Market volatility continued for the third consecutive month this year! Stockmarkets in the UK, US and Europe reached fresh record highs but all ended the month below their peaks. Japan made a 15-year high and gained around 6% in Sterling terms. The US and Europe were up between 2-3% but the UK’s FTSE suffered from vertigo as it hit 7065 and ended the month nearly 2% lower.
The UK Budget proved to be little more than pre-election posturing and in market terms was over-shadowed by the US Federal Reserve meeting later the same day. The Fed’ mischievously changed the text of their statement to accommodate a rise in interest rates whenever they deemed appropriate but then lowered their forecasts for growth, inflation and the path of projected interest rate rises.
The topsy-turvy world of fixed interest continued. Arguably the most over-valued asset class made further gains as the European Central Bank stuck some more money in the bond charity box; UK conventional gilts gained 2%, but the index-linked variety rose by 3.75%.
On the geopolitical front fresh conflict in Yemen caused a spike in the oil price and unsettled equity markets whilst Greece continued to successfully negotiate nothing new and had little effect on bonds or equities.
How are we currently positioned?
Last year we positioned the portfolios to benefit from further market gains but with less volatility than the market. We did this using a combination of equity income funds, absolute return funds and a relatively high weighting in commercial property.
After further gains in the stockmarket we have reviewed the level of risk that we are happy running, also bearing in mind the upcoming UK general election. Generally we’re happy with our current cautious stance but we have reduced the risk further on our high-risk funds. Here we switched out of the M&G Global Dividend fund, which is over 50% invested in US equities, into the less volatile Standard Life UK Property fund.
We think that UK equities offer better value than most markets and are well placed to benefit from a growing economy. We accept that uncertainty during, and possibly after, the general election could cause some underperformance but feel that further gains will come once the politics are sorted.
With the level of central bank manipulation it’s impossible to call the top in any market, but we expect a reversal at some point and are keeping a portion of the portfolio in low-risk absolute return funds ready to switch into good long-term investments when opportunities arise.