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Investment Comittee Meeting Minutes - April 2017

  • By Mark Fletcher
  • 01 May, 2017
A mixed set of results this month reflects the fact that markets are waiting to see what happens in various political arenas around the Globe. Politics is definitely at the forefront of most news bulletins, whether it be President Trump's latest tweets, the UK government triggering Article 50 or the fight to become the next President in France or Chancellor in Germany.

Covering the Month of March 2017


  • UK equity markets rose strongly through March, but closed out the month and quarter on a downbeat note as the Trump reflation trade continued to fade.
  • The move into risk assets cooled through the month, as doubts built over the Trump administration’s ability to pass pro-growth measures.
  • The UK’s blue chip FTSE 100 index surged to an all-time trading high mid-month, following dovish comments and an interest rate rise from the US Federal Reserve (Fed).
  • UK inflation rose 2.3% in February, breaking the BoE’s 2% target for the first time in over three years. Food prices increased 0.3% in the month, ending a three-year run of deflation in the segment.
  • Unlike the massive sector rotation seen in markets post-Brexit, the initiation of the nation’s formal exit from the EU was met with a muted response.
  • On the corporate news front, full-year results saw strong profit growth from life insurance groups Aviva and Legal & General.


  • Optimism about the US administration’s ambitious agenda of tax reforms, deregulation and infrastructure spending saw US equities start the month on a high. The S&P 500 index reached a new milestone of 2400.98 on 1 March. However, market sentiment began to turn more cautious as the month progressed.
  • Investors fretted over the potential knock-on effects of US President Donald Trump’s failure to deliver on his much-heralded campaign promise to replace the Affordable Healthcare Act. Although pulling the plug on the Republicans’ healthcare reform appeared not to endanger Trump’s policy ambitions, it highlighted the realities of Washington politics.
  • The lack of policy progress and rising market scepticism was reflected in the increased market volatility and a modest pullback in US equity markets. This was especially evident among so-called ‘Trump trades’, with financials, which had done particularly well in the post-US election rally, bearing the brunt, as investors took profit.
  • This, coupled with mixed core economic data releases during March that pointed to a slowdown in the US growth momentum, led the S&P 500 to end the month essentially flat.
  • At the sector level, performances among stocks in information technology, consumer discretionary and materials helped the S&P 500 index to remain positive in March, offset by financials, telecommunications and energy, which led declining issues. In particular, the oil and gas sector on aggregate has lagged behind most others in the equity market so far in 2017


  • European equity markets rose in March. Strong macroeconomic data in the eurozone underpinned gains. The FTSE World Europe ex-UK index returned 4.4%, posting the best monthly performance so far in 2017.
  • On an industry level, the utilities sector was the strongest performer. The financials sector was also another leading performer in March amid an intensifying debate around the future of quantitative easing and monetary policy in Europe
  • Meanwhile, the healthcare sector was the biggest laggard relative to the broader market, yet it still recorded positive returns. It was followed by the oil and gas sector.
  • On the macroeconomic front, despite the media’s unwaveringly focus on European politics, the eurozone economy continued to come out with solid data points and beat expectations. Euro-area unemployment fell to the lowest level in almost eight years.
  • The region’s flash Composite Purchasing Manager’s Index (PMI), a survey of private sector activity and a leading indicator for economic growth, maintained its upward trend, rising to a 71-month high in March.

 ASIA excl. Japan  

  • Asian equity markets recorded decent gains in March, partly due to a continuation of positive earnings revisions, strong economic data and easing fears about US trade sanctions.
  • Furthermore, many Asian currencies strengthened against the US dollar. A lack of conviction in Trump’s ability to stimulate growth, combined with the release of a ‘dovish’ outlook for US interest rates by the Fed, led to the unwinding of bullish US dollar positions.
  • China’s equity market made gains reflecting solid economic data and fewer concerns surrounding capital outflows following better-than-expected foreign exchange reserve figures. Meanwhile, the Chinese Government lowered the 2017 growth target to 6.5%, as it endeavours to reduce overcapacity, deleverage the corporate sector and destock the housing market. The People’s Bank of China continued to tighten monetary conditions by increasing the market-based policy rates for the second time this year.
  • Elsewhere, Korea’s equity market was a strong performer, driven higher by the technology sector and expectations of an expansionary fiscal policy from the upcoming new leadership after the impeachment of President Park was upheld.
  • In India, the equity market also made strong gains, as market sentiment was buoyed by the dominant victory of the ruling BJP in state elections and progress on the passage of the Goods & Services Tax legislation
  • Taiwan’s equity market lagged but remained in positive territory as the Taiwanese tech stocks rose on anticipation that the new iPhone will drive the revenue growth of Apple’s suppliers.


  • Japan’s equity market ended March lower, as confidence in the US administration’s ability to stimulate growth faded after the last-minute withdrawal of President Trump’s healthcare reform bill.
  • The Bank of Japan opted to retain its ultra-lax monetary stimulus, while the US Fed raised interest rates as expected, although its outlook was perceived to be unexpectedly cautious. Against this backdrop, the yen strengthened relative to the US dollar. Less economically sensitive and domestic-demand driven sectors performed well, as financials and more cyclical sectors lagged.


  • Emerging equity markets gained further ground in March, making it the third month in a row of outperformance versus developed equity markets. The best performing region was emerging Asia, led by India and Korea. Mexico was the strongest performing country, but gains in the Latin American region were held back by disappointing returns from Brazil.
  • Performance in the EMEA (Europe, Middle East and Africa) region varied, with strength in Eastern Europe being offset by weakness in some Middle East countries, such as Egypt and Qatar
  • Apart from health care, all other emerging market sectors registered gains, with information technology being the top performer.
  • Although US interest rates were raised for only the third time since the Global Financial Crisis of 2008-2009, the US dollar struggled to advance against emerging market currencies – the Mexican peso rose by 7.4%.


  • March was a mixed month for bond markets. In general, bond yields (which move inversely to bond prices) rose during the first two weeks, before then falling in the second half of the month. Events in the US were an important influence on returns.
  • The bond market’s initial focus was the US Fed and its monthly meeting to decide US interest rate policy. In late February, statements from Fed officials took on a more hawkish tone. This continued into March, and so by the time of the Fed’s meeting on 15 March, a 25 basis point hike was fully ‘priced in’ to financial markets. The statement accompanying the 25 basis point increase and official Fed forecasts, however, suggested a more gradual path of interest rate hikes than the tone of earlier communications had led parts of the market to expect. This shift in tone helped ease pressure on US Treasuries, which subsequently led other core government bond yields lower.
  • The new US Governments failed attempt to get its flagship healthcare reform bill through Congress appears to have led the market to revise its expectations about the likelihood of the US Government’s pro-growth policies passing. So-called risk-assets eased as a result, while government bonds were given further impetus.
  • In the UK, the big news was the Government’s triggering of Article 50 to leave the European Union. While this is clearly a very significant political development, its immediate impact on financial markets was negligible.

  What do we think?

A mixed set of results this month reflects the fact that markets are waiting to see what happens in various political arenas around the Globe. Politics is definitely at the forefront of most news bulletins, whether it be President Trump's latest tweets, the UK government triggering Article 50 or the fight to become the next President in France or Chancellor in Germany. We suspect that these and other issues will continue to dominate sentiment but that, in the long run, investment returns will still be driven by economics and the success or otherwise of businesses large and small around the World. We remain cautiously optimistic for growth over the medium term, although the higher the indices travel, the greater the potential fall will be if it comes.  

Most investors have had a good run in the last eight months or so since the EU Referendum, so perhaps we should view this as a good cushion for tricky times ahead.  

Date of next meeting:      23rd May 2017

Fraser Heath News

By Mark Fletcher 02 Oct, 2017
There used to be a time when the market would jitter at the slightest bad news story. Nowadays it seems that record breaking storms and a war of words amongst leaders with mass devastation at their fingertips can’t shake the nerves of investors. Which is not to say that markets have been driving forward (the FTSE 100 is, at the time of writing, where it was in the middle of January) but rather there hasn’t been the volatility we have seen in recent years.
By Mark Fletcher 05 Sep, 2017
It’s always the case that news stories like Brexit negotiations stalling, the actions of the North Koreans, the daily travails of the leader of the Western World, terrorist attacks and housing market slowdowns can grip us and make us fear the worst.
By Mark Fletcher 31 Jul, 2017
June was another good month for markets, in general terms, with many of the major developed markets once again flirting with new all-time highs. However, we have a sense that all may not be as it seems.
By Mark Fletcher 01 Jul, 2017
As we can see from the above commentary, markets generally continued to make progress in May despite plenty of uncertainty and conflict around the World.
By Mark Fletcher 01 Jun, 2017

Our reason for showing these graphs is to highlight that the VIX index is trading back at 2007 levels of low volatility while stock markets are at all-time highs. We can no more see the future than anyone else but we do know that when it comes to investing, the most money is often made when every sinew in your body is screaming that it is madness to invest, and that sometimes the opposite is true.

By Mark Fletcher 01 May, 2017
A mixed set of results this month reflects the fact that markets are waiting to see what happens in various political arenas around the Globe. Politics is definitely at the forefront of most news bulletins, whether it be President Trump's latest tweets, the UK government triggering Article 50 or the fight to become the next President in France or Chancellor in Germany.
By Richard Ellis 01 Apr, 2017

It has been a strong start to the year for investment portfolios, mostly driven by signs of continued strength in the US Economy and the promise of more to come under the Trump presidency. Markets always move ahead of the economy so to make money, investors will position portfolios to benefit from what they think is around the corner. But what if the promise does not materialise? One fund manager described this recent wave of enthusiasm as the “Trump Bump” and that this may well be followed by the “Trump Dump” if the new President is unable to deliver on his campaign promises due to lack of support from political colleagues. In this respect, it seems that the failed repeal of Obamacare has given investors pause for thought over the last week or so.

While some asset classes are looking expensive, on an individual basis, there remains optimism amongst fund managers. Those who particularly seek to invest in undervalued, unloved but robust companies can see plenty of scope for increased valuations in their investment pool.

Eight years have now passed since the FTSE 100 hit its Credit Crunch low point. In investor memory, particularly among younger investors, we are getting to the point when the slide that started in summer 2007 down to its nadir risks being forgotten. We don’t know what the future holds but the past tells us that investing needs time on your hands to ride out the tough times. We’re confident that investing remains the best long term strategy for your money but make sure that you understand the strategy you are taking and that your portfolio is right for your attitude to investment risk and your time frame.

By Richard Ellis 01 Mar, 2017

Markets made a much better start to the year compared to this time last year. However, investors remain wary of problems that are likely to rear their heads later in the year and so, in general, markets have paused for now. Politics seems likely to dominate sentiment again this year, with a number of key general elections to be fought in Europe, most notably in France and Germany. Volatility is likely to spike during these events. However, market volatility can be the friend of the active fund manager and in recent meetings and conference calls with managers many have expressed the view that there are plenty of good opportunities and are generally cautiously optimistic about prospects for the year as a whole.

Our view is that the strong equity returns we saw in the second half of 2016 are “in the bank”, as it were, so if markets do sell off at some point in the next few months, these profits can be eroded before we are worse off than we were before the EU referendum on 23rd   June 2016.  

By Mark Fletcher 31 Jan, 2017

The prospect of a protectionist Trump presidency and actions to spend their way to economic growth have led to a swing in investor sentiment towards those companies that will benefit from the US finally entering a period of strong economic growth.


  • UK equity markets continued to rise in December, ending an initially volatile year on a strongly positive note. On the back of a “Santa Claus” rally, the FTSE All-Share index closed the year at an all-time high.
  • As was so often the case in 2016, the mining and oil & gas sectors fuelled much of the rise; following agreement by OPEC members on a production cap, the oil price hit its highest level since 2015.
  • On the macroeconomic front –the Consumer Price Index (CPI) rose by 1.2% in the 12 months to November 2016, its highest level in two years.
  • Market expectations of the impact of Brexit in 2017 weighed on sterling, which faltered against the Euro and US Dollar into the Christmas period.


  • The fed raised the interest rate by 0.25% in December. It also announced its intention to raise interest rates three times in 2017, the central bank indicated that it would likely raise interest rates by 0.25% each time.
  • The post-US election rally saw the S&P 500 index hold onto the previous month’s gains to post solid returns of 1.98%.
  • Stock sectors, led by so called ‘defensives’, across the board recorded positive monthly returns
  • The US Manufacturing Purchasing Managers Index (PMI) hit a 21-month high.
  • US Manufacturers reported stronger hiring and higher prices for raw materials, which support other signs of labour market strength and higher inflation, pointing to improving manufacturing conditions.
  • December also saw consumer optimism about the state of the US economy increase to the highest level since August 2001
  • US GDP growth for the third quarter 2016 surprised markets with a better-than-expected growth rate of 3.5%.
  • Positive contributions to GDP growth came mainly from exports, private inventory investment, personal consumption expenditure and federal government spending
  • In a sign that the post-US election rally was expanding, investors regained interest in so-called ‘defensive’ sectors while profit taking by investors weighed somewhat on the performance of financials stocks
  • Healthcare shares lagged most other sectors during the month. In particular, biotechnology companies in the S&P 500 tumbled the most since October 2016 after Trump declared himself an opponent of high drug prices.


  • European equity markets advanced in December, posting one of the best monthly performances in 2016.
  • Markets surged in the aftermath of the Italian referendum, a political event which had been significantly weighing on sentiment over the last few months.
  • With the vote out of the way, market participants regained confidence amid increased talks of fiscal stimulus globally, aimed at spurring economic growth.
  • Within European markets, cyclical sectors (more sensitive to economic cycles) continued to perform strongly, reversing the trend observed in the early months of 2016 where deflationary fears dominated investment decisions
  • On the macroeconomic front, the month of December witnessed important decisions from central banks in Europe and overseas. Following its governing council meeting on 8 December, the European Central Bank (ECB) decided to extend its quantitative easing (QE) programme by 9-months, to the end of 2017, or beyond if necessary, until it sees a sustainable increase in Eurozone inflation towards the ‘below 2%’ target level


  • Returns from the MSCI Asia Pacific ex Japan Index in December were largely flat in sterling terms, although there was a notable divergence in performance between the region’s equity markets with Australia joining in the broader rally in developed markets, while Hong Kong and China were the notable laggards
  • Most Asian currencies continued to weaken relative to the US dollar with expectations that the US Federal Reserve will raise interest rates further in 2017.
  • Investor sentiment towards China was impacted by an apparent shift in policymakers’ focus from prioritising growth to concentrating on credit risks.
  • Higher commodity prices, particularly for crude oil and iron ore, helped support Australia’s equity market performance, which also benefited from further rotation into financials.
  • It was a quiet end to the year for global emerging equity markets although there was significant dispersion of performance between the regions.
  • The EMEA (Europe, Middle East and Africa) region came out on top with all countries here registering gains for December. The Russian equity market led the advance, drawing support from higher oil and gas prices.
  • Latin American equities treaded water for most of the month with most countries here trading flat, except Colombia which got a boost from an interest rate cut.
  • For the second consecutive month, the Russian equity market advanced strongly with the energy sector benefiting from the commitment of global oil producers to cut supply. Sentiment towards Russia was also enhanced by a belief that relations between the country and the US are set to improve in 2017 following Trump’s presidential election victory.
  • Russia’s inflation rate continued its downward trend in December with the annual CPI rate falling to 5.8%. While not enough to trigger any change in monetary policy, Russia’s central bank said it would consider an opportunity to cut interest rates during the first half of 2017.


  • The Japanese equity market ended the month higher in local currency terms. The market has rallied due to a better outlook for global growth in 2017 combined with yen weakness versus the US dollar post the US election
  • Macroeconomic data releases were generally positive over the month. The Bank of Japan upgraded its economic outlook stating that the economy has continued a moderate recovery trend, and maintained all components of its monetary policy.


  • The 10-year Gilt yield fell 18 basis points (bps) to end the year at 1.24%. US government bond yields were higher following the hike in US interest rates, however, the pace of the increase was more modest than recent months with the yield of the 10 year US Treasury rising 6bps to 2.44%. Given the more benign government bond market, corporate bonds outperformed.
  • Deutsche Bank announced it had agreed a US$7.2bn settlement with the Department of Justice. This is significantly below the US$14bn figure initially proposed in the summer and the market reaction to the news was positive.

What do we think?

Talk of the UK Government’s stance to not join the Single Market has weakened the pound further in recent weeks, leading to a continuation in the increase in the value of the overseas assets in portfolios and the earnings expectations of UK companies with overseas earnings.

The prospect of a protectionist Trump presidency and actions to spend their way to economic growth have led to a swing in investor sentiment towards those companies that will benefit from the US finally entering a period of strong economic growth.

This has been a bizarre bull run in investments since the October 2008 Credit Crunch, as price rises have been focussed on safe and secure investments, while the riskier investments that often trigger the exuberance at the end of an investment cycle have largely been ignored. The movement towards those stocks has seen some of the reliable heavyweight fund managers underperform of late with their riskier counterparts finally being rewarded. That this rotation into these stocks has been due to the promises of The Donald should give us all good reason to tread carefully.

Date of next meeting:      21st February 2017

By Mark Fletcher 22 Dec, 2016
What we are pretty confident about is that equity and bond markets are likely to be volatile in 2017 ahead of the negotiations between our Government and the EU and the myriad of other political and social issues that continue to dominate news headlines. It may be another year for investors to hold their nerve and let the storm pass.  
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