Market Round Up

UK

• March saw another solid performance for UK equities with the FTSE All Share rising by 6.3%
• Mid cap companies outperformed small and large caps as reflected by the 8.8% rise in the FTSE 250 index versus the 6.1% and 3.5% respective rises in the FTSE100 and Small Cap indices.  A flurry of Merger & Acquisitions was the main driver of strong mid cap performance
• The Bank of England Monetary Policy Committee kept interest rates at 0.5% and the Quantitative Easing programme at £200 billion.
• Alastair Darling’s budget was a non event and this sentiment was evidenced by the muted reaction of the market.
• Since the announcement of the General Election concerns over a hung Parliament have dominated headlines and this uncertainty is likely to increase market volatility as we get closer to May 6th.
• There was mixed news on the housing market – the Nationwide’s house price index registered a small increase showing the market had continued to grow, however the number of mortgages approved fell to a 9 month low in February.

US

• Evidence of strong growth in the US continues and also an employment report in March showed an increase in jobs for the month.  Although previous months had seen job cuts flattening out, this report reflects there is genuine improvement in the labour market.
• In addition to the improvement in employment, the market was also spurred along by better than expected retail sales growth.
• Sectors which have seen particularly strong growth are technology companies, industrials and financials.

Europe

• The rescue package agreed by Germany, France and the International Monetary Fund improved the short term financial outlook for Greece.
• There is however still mixed news concerning Europe, indices were up but so was inflation and unemployment.
• Unemployment in the Eurozone hit 10%
• Portugal’s credit rating was also downgraded from AAA to AA

Asia & Emerging Markets

• Interest rates increased in Australia, India and Malaysia as stimulus measures are starting to be phased out.
• Some fund managers are becoming increasingly selective on Asian economies. Whilst they want to benefit from strong Chinese growth, they are becoming wary of inflationary pressures building in some countries unless central banks take action to dampen liquidity.
• In China friction continues as the United States press for revaluation of the Chinese currency against the dollar. This has been met by strong opposition from Chinese officials.

Japan

• Economic momentum seems to be picking up
• Japanese equities gained ground as economic data was generally positive
• A sharp rise in retail sales also suggests that an improving economy and falling unemployment are starting to feed through to household spending

Fixed Interest

• Despite the concerns over debt default by the Greek Government and the spread of this problem to Spain and Portugal, Government bonds outperformed both investment grade and high yield corporate bonds, as they benefitted from a renewed rise in investor risk aversion.
• The main beneficiaries were government bonds issued by core EU members such as Germany.
• New corporate offerings which have been a feature of the market over the last year dried up. The high yield sector also saw a drop in liquidity and suffered from investor risk aversion but bounced back in the second half of the month.

Teleconference Feedback

Tom Dobel – Fund Manager of M&G Recovery Fund

• The fund has a 3 to 5 year time horizon and takes a long term investment approach rather than short term trading
• There are four stages within the “recovery” process :-
• Unloved companies
• Companies which have stabilised
• Companies that have recovered well
• Mature companies
• Tom has the following strict investment principles
• He only invests in companies that they fully understands
• He only invests in people that they trust
• He avoids companies with both financial and operational problems
• He avoids derivatives and stock lending
• In 1969 when the fund was launched, only 5% of  FTSE 100 companies’ earnings were from overseas.  Currently around 70% of  earnings come from overseas and within the Recovery fund, this figure is closer to 80%
• Although we have witnessed a corporate recovery there is not yet a strong economic recovery and Tom remains concerned about the economic outlook for the UK, which is why he is comfortable with the level of exposure to overseas earnings within the fund.

Conclusion

There are increasing reasons to be optimistic about future investment returns, even though Western economies are not yet fully out of the woods. While the election will distract investors for the next month, we are seeing increased interest from clients dissatisfied by low savings rates and willing to take a degree of risk to improve returns.


Date of Next Meeting:  11th May 2010