Markets have had a good quarter with most equity indexes increasing in value and our portfolios have performed strongly across the board. However, we are now becoming more concerned about the negative news flow coming from the Eurozone and think the risks of another weak summer in markets are increasing. We have already taken some profit and increased our cash holdings to make portfolios more defensive and may well add to this cash in the short term.
The cash we hold is purely for tactical reasons and is there to insulate you against falls in markets. We will see how markets move in the next couple of months and expect to re invest the cash in the short term if we see the right opportunity. In the longer term we remain happy equity markets will give positive returns well in excess of cash and fixed interest investments.
FTSE 100 Daily Chart
Some sectors have had a strong run and look expensive to us at current levels. Financials including the banks have also had quite a strong recovery in quarter one, and we would be slightly surprised if this had much further to run but it has pushed the index higher overall.
We think the market has made a short term peak and you will see from the chart of the index the market has had a relatively weak quarter two in each of the last two years recovering well in the last quarter.
We currently hold Cazenove UK Smaller Co’s in most portfolios which has performed extremely well for us in the past 12 months and we will look to take some profit from this shortly, given our views expressed above.
FTSE 100 Weekly Chart
This market sold off quite dramatically from the end of August 2012 until the end of November and made quite an important low at this point. The reason it was important to us is that it had hit this low before and recovered before, which gave us the confidence that it was a clear buy signal. We decided to invest in December and benefited from the rise that started in December and ran through most of quarter one in 2013, not only did we benefit from the market movement, we also benefited from the currency with the pound falling sharply against the dollar, which only added to our gains. We have decided to take the profit and move to cash having made more than 18% in the short term.
The outlook is improving in the USA and although the recovery is very slow the policy makers continue to ease money controls and we expect to reinstate our holding again later this year.
S&P 500 Daily Chart
FAR EASTERN MARKETS
These markets (ex Japan) started to rise before most western markets and you will see from the chart of the Hong Kong Index this is now leading other markets down. Our holding in the Newton fund benefitted from this strong market performance and it will be more defensive in any down turn.
Despite the short term downturn we intend to keep our holding here at least for the time being.
Hang Seng Daily Chart
We think on a 12 month view equities will outperform most other asset classes although we expect to see an increase in the volatility in markets going into the Summer.
We will be looking to reduce our fixed interest / corporate bond exposure during 2013 and although we do not expect to see interest rates rising in the near future we remain concerned that these markets are very much less liquid than stock markets and therefore we will wish to be reducing our exposure slightly early. We anticipate that this will be actioned in quarter 3 and 4 this year.
Inflation risks are increasing from rising commodity prices and policy makers are at the moment choosing to ignore this. When they become more concerned and if the economy is stronger, then rates will start to rise.
If you do have any questions or would like to discuss anything then please get in touch. We look forward to hearing from you.