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Investment Committee Meeting Minutes - August 2017

  • 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.

Covering the Month of July 2017


  • The UK equity market closed the month marginally higher after a quieter month on the macro-economic front
  • Economic readouts continued to provide mixed signals of growth in the UK economy; real GDP growth was close to 2% in the four quarters to the end of quarter one 2017, but grew by just 0.2% in the first quarter.

  • Warmer weather boosted UK retail sales in June, with total sales (excluding fuel) up 3% in the month, up from 0.6% in May, but doubts over consumers’ ability to bolster economic growth continued

  • July was particularly busy on the corporate news front, with a swathe of results reported through the second half of the month.

  • M&S reported a fall in quarterly clothing revenue and missed estimates for food sales, adding to evidence of diminished consumer confidence as rising inflation squeezes disposable incomes.

  • British American Tobacco completed its US$49.4bn buyout of Reynolds American and confirmed plans to launch its ‘heat-not-burn’ tobacco device Glo in the US market next year.

  • Into month end, tobacco stocks sold off sharply following an announcement by the US Food & Drug Administration of plans to launch a consultation on lowering nicotine levels in combustible cigarettes  


  • The US equity market remained within earshot of all-time highs in July supported by the latest set of corporate results. Generally positive earnings bolstered confidence in the strength of the US economy.

  • The rate of US growth picked up steam in the second quarter, growing at an annualised rate of 2.6%, from 1.2% in the first quarter.

  • Indeed, the number of jobs being generated by the US economy beat all expectations in June. Some 220,000 jobs were added in the month, markedly higher than expectations. However, the sustained weakness in wage growth could fuel the debate over when the Fed should next raise interest rates.

  • During the month, Fed chair Janet Yellen signalled that the central bank wouldn’t rush to increase interest rates and would do so only gradually; the US stock market rallied in response.

  • Telecoms and IT were the best performing sectors.

  • The healthcare sector was among the weaker performers over the month. The share price of healthcare stocks slipped when President Trump’s health-care reform bill ended in failure.

  • Amazon’s market value hit the half-a-trillion dollar mark for the first time on 26 July, joining an elite group of companies valued north of US$500bn. The other US members are Apple, Alphabet and Microsoft.


  • European equity markets remained broadly flat in local currency terms, but rose in sterling terms amid an appreciation of the euro.
  • Investors looking for clues about the future of monetary policy in the eurozone were kept waiting, as the European Central Bank (ECB) left policy interest rates unchanged in July and gave very little away regarding the outlook of its quantitative easing (QE) programme beyond 2017.

  • On a sector level, the telecommunications sector was the strongest performer in July. After lagging in June given the introduction of a new regulation that eliminated retail roaming charges in the EU, the sector rebounded strongly, buoyed by strong sales and earnings surprises.

  • The financials sector was also a leading outperformer this month. Meanwhile, the healthcare sector was the biggest detractor followed by the industrials sector.

  • On the macroeconomic front, the euro-area economy maintained its steady and broad-based expansion. Private sector activity surveys continued to indicate robust growth across the manufacturing, services and composite sectors of the economy.

  • Data released in July showed eurozone industrial production (excluding construction) growing 4% year-on-year, a level not seen since 2011, and up from 1.4% in June.

  • Meanwhile, eurozone unemployment continued to edge lower, reaching 9.1% and underpinning domestic demand.

  • Given the strengthening growth indicators, inflation remains a key factor in determining the future path of monetary policy in Europe. In July, headline inflation stayed constant at 1.3% in the eurozone, while core inflation ticked up to 1.2% from 1.1% in June.

  • Asian equity markets continued to rally in July on positive earnings revisions, solid global growth and a lift in risk appetite as the US Federal Reserve signalled gradual interest rate hikes.

  • In China, the equity market rose over the month, helped by encouraging economic data. In particular, second quarter GDP grew by 6.9% year-on-year, which was ahead of expectations.

  • Elsewhere, Indian equities continued their strong momentum, outperforming the region.

  • Although the Korean equity market also made gains, it underperformed the region partly due to a noticeable correction in tech stocks, as the market began to anticipate the end of a market upturn.

  • The performance of other markets also lagged. For example, Taiwan’s market ended the month only marginally higher, as 2018 earnings per share forecast revisions turned modestly negative, while in Australia, the market was almost flat as industrial stocks with overseas exposure suffered from a sharp rise in the Australian dollar

  • Finally, most major commodity prices rallied during the month, driven in part by a weakening US dollar and strengthening Chinese economic data.


  • Emerging equity markets performed strongly in July, drawing support from improving fundamentals and encouraging news on the corporate earnings front.

  • The best performing region was Latin America, followed by EMEA (Europe, Middle East and Africa).

  • All emerging market sectors except healthcare gained ground, with materials and technology registering the biggest gains.

  • Equity gains in the EMEA region were led by Hungary and South Africa. For the first time in five years interest rates were reduced in South Africa as the economy grappled with recession and increased political uncertainties.

  • Confidence towards Russia was dented by moves from US lawmakers to impose stronger sanctions on the country, although they have not yet been finally approved. 


  • Japan’s equity market edged higher in July, ending the month with a small positive return in local currency terms.

  • Japanese companies made a strong start to the first quarter earnings reporting season, and results so far have generally been pretty solid.

  • A number of companies also raised their full year earnings guidance earlier than is usually expected. However, positive equity market momentum was tempered by rising global interest rates and the ruling Liberal Democratic Party’s heavy defeat in the Tokyo Metropolitan Assembly election.

  • Economic data shows a virtuous cycle unfolding between gradually rising incomes and consumer spending, supported by labour market tightness (more jobs than workers, resulting in low unemployment).

  • However, while growth remains above trend, inflation remains weak, and the Bank of Japan cut its inflation forecast and pushed back the date for when it expects to achieve its 2% target to around 2019  


  • At the start of the month, news that Mario Draghi would attend the Central Banker’s symposium in late August seemed to confirm the aggressive tone of late June. The last time Draghi spoke at the event, he used the opportunity to prepare the market for the start of quantitative easing (QE). Speculation therefore mounted that he would use this year’s speech to prepare markets for the tapering of asset purchases (tightening of monetary policy).

  • Against this backdrop, the European Central Bank’s (ECB’s) policy meeting on 20 July became an important focus for the market. In the subsequent press conference Mr Draghi made a number of comments consistent with maintaining economic stimulus. However, he also did not deviate from his earlier message that a tightening of policy was on the horizon. 

  • In the US, the Federal Reserve (Fed) Chair, Janet Yellen, made her semi-annual testimony to Congress, commenting that they may not need to hike interest rates much more. There was however, further confirmation that the Fed expects to start reducing the size of its balance sheet this year as it seeks to normalise US monetary policy.

  • Data released during the month appears to have given central banks some breathing space, with inflation decelerating across most major markets. This softening of data was attributable to falling oil prices.

  • The softening of inflation data and tempering of central bank rhetoric helped corporate bond markets to outperform government bonds.

  • Financials were once again the best performing part of the corporate bond market, with the highest returns from subordinated financial bonds. 

What do we think?

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. Our instinct to fear loss more than we’re driven by the prospect of gains means we can be drawn to negative words in the financial press forecasting the next investment market slump. History tells us that downturns will reappear but even when there are doomsday predictions and worrying news flow, the truth is that none of us know what will trigger the next downturn or when it will occur.

2017 is proving to be a resilient year for stock markets so far. For now, the good returns are adding weight to the argument that as we cannot call the short-term direction of markets, when investing for the medium to long term, it’s best just to strap yourself in for the ride.


Date of next meeting: 22nd September 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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