We highlighted the volatile start to 2014 in our last market update in February and since then the volatility has continued. The growth stocks that did so well over 2013 suffered a very sharp and swift correction during March and April of this year, with the Nasdaq leading the decline and dragging virtually every other index down with it. This was coupled with ongoing concerns over the Ukraine, with a civil war in the making and plenty of border activity by the Russians. Against this backdrop, the markets have struggled to make any real gains despite improving economic data.

Most of the economic news is improving, particularly here in the UK, but as well as in the USA. It also looks like Europe is slowly getting better. Emerging Markets and Asia generally have not performed particularly well over the last 12 months, as data from China continues to weaken from its previous very high levels.

We are seeing some forward guidance that interest rates may start to rise, but the indications are it will not be until first quarter 2015. This rise is expected to be 0.25%, so it will not make a material difference to returns from cash deposits.

We are progressively reducing our holdings in general fixed interest funds in favour of rather more specialist funds. We have reduced our holdings in this area from 33% to 18% in our growth offering and from 38% to 28% in our balanced fund in the last 12 months in favour of equities. In Cautious, because we are more concerned with capital preservation, the weighting went from 38% to 33%.

Sentiment in stock markets are being dampened quite a lot by 2 factors and have become much more short term in outlook. Firstly the general election is getting closer and the political risk in utility shares has caused that sector to correct quite sharply as the market takes on board that we could have another Labour Government.

And secondly the situation in the Ukraine is looking potentially very serious and feels like the “cold war” is back again. If the situation worsens (i.e. Putin continues to up the ante with the West), then stock markets will fall further in the short term. The US is actively seeking support from the other Western States and there is no doubt applying sanctions will impact the Russian economy quickly, however, similarly, as a retaliatory reaction they can cut or reduce gas supplies into the West. Worries may subside after this Sunday’s elections, but either way, markets dislike uncertainty and this may override the better economic background in the next few months.

Firstly taking a closer look at the UK market – looking at the chart of the FTSE100 chart below, plotted on a weekly base, you can see how looking at performance year on year numbers can make returns look very modest. From May 2013 -2014 the market made virtually no gains. Roll the clock back 1 year and the gains from May 2012 to May 2014 are pretty solid.

So sometimes we have to accept that short term discrete numbers don’t feel that strong as previous periods drop out of the 12 month numbers. We review all our funds very regularly and although some numbers are pretty flat short term, the long term still looks very persuasive against the alternatives.

You will have seen quite a lot of publicity regarding Neil Woodford running a new income fund. Neil is a very experienced UK Income manager who established his reputation at Invesco Perpetual. The current Income fund we own has a better record than the old Woodford fund. When a manager leaves one group to join/establish another we always like to see that his process works in the new investment house as sometimes managers have not been able to transfer their same performance levels after such a move.

Because of this we will keep this fund under review as a possible purchase, but will not be buying it at its launch.

FTSE 100 Weekly Chart

FTSE100 Weekly Chart 2014


The USA has been one of the stronger western markets over the last year and technically looks to be in the strongest of the current trends. We have however seen returns reduced by the strength of the GBP against the Dollar, which has reduced returns to UK holders. The Dollar rate a year ago was below $1.50 and is now closer to $1.70, meaning that 11% has been taken from the market return as a Sterling investor and this has stopped us from having a higher weighting.

S&P 500 Weekly Chart

S&P 500 Weekly Chart 2014


During the last quarter in 2013 we added to Europe and generally this is working well.  The chances of a Euro breakup receding and the economies recovering from very depressed levels are aiding this.


Asia has been disappointing in terms of returns. We still feel returns will come through, but you will see from the chart below of the Hong Kong Index, there have been large price swings and the market is nowhere near the levels of a year ago. We therefore feel we will continue to run these positions as gains can come very rapidly in these markets.

Hong Kong Daily Chart

Hong Kong Daily Chart 2014

We contrast this with Japan, where returns have been hit by currency depreciation and increasing taxes, taking the market lower. Domestic consumption is still very slow.

Japan Daily Chart

Japan Daily Chart 2014

In a nutshell we have lost patience with this market and think we can do better elsewhere, so we will be exiting this market very soon. The chart signals are deteriorating and therefore something we watch closely.

On the whole we remain very positive about our current mix of holdings and recent changes have added to returns. We will be in touch shortly with regards to proposed changes to our portfolios.

If you have any queries, please contact us.


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