Investment Minutes March 2012



  • UK equity markets continue the buoyancy seen at the start of 2012. There has been an element of profit taking ahead of the Budget.
  • Inflation fell to 3.4% (Consumer Price Index) and 3.7% (Retail Price Index) in February.
  • Oil prices are under pressure and this could lead to the release of strategic supplies to drive prices down.  
  • Corporate news was positive generally and the FTSE rose steadily on the back of data from the US.
  • Royal bank of Scotland and Lloyds lead the rally in the banking sector, having set out clear strategies to sustain funding.


  • Positive news from the Federal Reserve, with 15 out of 19 banks passing the stress test, leading to strong performance in the banking sector. 
  • Unemployment figures at a previous two year low of 8.6% fell further to 8.3%.
  • Consumer confidence remained strong despite rising oil prices putting a squeeze on household finances. 
  • Another source of positive news came from Apple, who announced a dividend and a share repurchase program to attract new investors. It is its first dividend since 1995. 
  • Sentiment in the house building sector remains at its highest level in nearly five years after five straight monthly gains.


  • The second round of funding by the ECB further boosted the equity market for banking stocks and more cyclical areas of the market in particular. 
  • Eurozone governments are taking the opportunity to instil fiscal discipline in all sectors and especially within the banking sector, following recapitalisation.
  • Greece successfully secured a second bailout, but with a requirement that austerity measures be enforced and monitored.
  • Market data is mixed. For example, Carrefour’s share price fell after Chinese authorities ordered the closure of one of its stores. Misys surged after agreement to acquisition by Vista Equity partners.  
  • Eurozone finance ministers are looking for an additional 0.50% of spending cuts from incoming Popular Party in Spain, where the 2011 deficit target was missed by a wide margin. 


  • News in Asia was also mixed, with markets awaiting further data from the US to clarify the global growth outlook.  
  • There is speculation China is expected to lower targets for economic growth this year. Despite this, Chinese equities remained amongst the market leaders, posting the sixth consecutive weekly gain. 
  • Any improvement in the outlook for the global economy is expected to benefit major exporting regions like China, Taiwan and Thailand, with Industrials and technology stocks leading performance and with strengthening demand from the Eurozone.
  • The central bank of China cut reserve requirements for the banking sector by a further 50 basis points, indicating a soft landing for the economy. 
  • The MSCI Emerging Markets index outperformed the MSCI World Index, continuing the “risk on” environment of 2012 to date. 
  • The EMEA outperformed the broader emerging market peers. Egypt outperformed reflecting hopes that the worst political uncertainty is past. South Africa, Hungary, Russia and the Czech Republic benefited from the strength of local currency.   
  • Russia also benefited from the jump in oil prices, a direct result of tensions between Iran and the West.   


  • The Nikkei climbed 10.5% in February, with much better than expected retail sales boosting share prices.  
  • Equities surged on improved outlook and a weaker yen, with record highs against the dollar bolstering earnings prospects for exporters.
  • Financials advanced on optimism over the stability of the global financial system.


  • Investor risk appetite has been sustained throughout the month. 
  • Credit spreads tightened with core government bond yields rising.
  • US Treasury 10 year yields jumped 27 basis points.
  • UK 10 year gilt yields and 5 year German bund yields also rose.
  • Best performers have been high yield and lower rated end of investment grade.


We were concerned to read that MetLife had failed the US Federal Reserve Bank Stress Test, which is designed to ensure that banks have a sufficient capital cushion to weather a severe downturn. While MetLife’s business activities are predominately in the insurance sector, by virtue of its ownership of MetLife Bank, it is a bank holding company and as such, was required to participate in the 2012 Comprehensive Capital Analysis and Review. This is despite MetLife announcing in December 2011 that it had agreed to sell MetLife Bank’s depository business to GE Capital Financial in the second quarter of 2012.  
In a statement issued by Moody’s rating agency on the 14th March 2012, their opinion is that “the Fed stress tests are primarily focused on assessing banks rather than insurers and the two ratios that MetLife failed do not fully take into account the differences in banks’ and insurers’ assets and capital structures”       
The ratios used to measure insurance company capital adequacy show that MetLife is financially strong and at the end of 2011, MetLife’s principal domestic insurance subsidiaries had a capital ratio well in excess of the regulatory minimums.
After looking into this further we are now more comfortable with the situation. The Fed’s announcement has not affected MetLife’s rating with either Moody’s or Standard & Poor’s, however if you wish to discuss this further, please contact your usual Adviser.   

Deposit Rates

Instant Access Cash ISAs  

Nat West e-ISA 3.50% Fixed 1% bonus for 1st 12 months
ING Direct 3% Guaranteed rate for 12 months

Instant Access Deposit Accounts 

Virgin Money Easy Access 2.85% Interest paid annually

Fixed Term ISAs

 Provider      AER      Interest Paid  Term
 Halifax 4.50%  Annually 
 Halifax 4.35%  Annually   4
Virgin  3.30%  Annually 
Santander  4.00%  Annually 
Please note these are provided for guidance only.  It may be possible to obtain higher rates from other sources that are dependent on your age or the amount you are saving. 

What do we think?

The economic picture continues to look and feel more positive despite enduring speculation about the future of Italy as an EU member and the wider effect of default on the EU as a whole. 
We believe that a ‘risk on’ theme is likely to be rewarded and have therefore discussed and agreed to revise our asset allocation strategy. We have been monitoring the UK Commercial Property sector for some time and believe that exposure to this asset class should be reduced across our model portfolios. This tactical adjustment reflects our view that the majority of property funds will struggle to deliver a real return net of fees over the short term.
We have reallocated to fixed interest and alternative assets across the lower risk portfolios and to alternative assets and global equities across the portfolios at the higher end of the risk spectrum. 

And Finally…..

We do not expect that announcements in the budget will have any real effect on markets, especially as most of the policy has been leaked and printed already!  Clients might do well to remember that Easter falls early this year so the window to fully utilise ISA allowances is much smaller than usual!
Date of Next Meeting:  20th April 2012
25 April 2013 Author: Richard Ellis