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Investment Committee Meeting Minutes - December 2015

  • By Richard Ellis
  • 09 Feb, 2016

Investment markets hate uncertainty, as such volatility is extremely high on a daily basis. Despite the recent negativity there will be quality companies that have seen their share price slashed that now seem good value. When the markets recover, which they will, these are the share prices that will react positively first. As we frequently say, the value of an investment is only crucial on the day you buy it and the day you sell it. If you are a long term investor with time to be patient to await the recovery, do so. Now is a time to hold one’s nerve. 

Fraser Heath Market Update


  • The FTSE 100 Index hit a three-year low mid-month as further weakness in the oil price and dividend cuts outweighed positive news on UK bank stress tests.

  • Inflation turned positive for the first time since the summer. CPI rose by 0.1% boosted by upward movements in transport costs as well as alcohol and tobacco prices.

  • GDP growth was at the slowest pace since late 2012 as trade and financial services weighed on the economy.

  • Consumer spending remained strong driven by a fall in the savings ratio to the lowest level since 1963.


  • The US equity market ended December lower as volatile crude oil prices weighed on sentiment to bring about a return of -1.6% for the S&P 500.

  • At sector level, energy stocks were the worst performers after it became clear there would be a huge glut of oil in the New Year, following the announcement by OPEC that the cartel would not cut production to alleviate the oversupply problem.

  • Healthcare stocks performed well after it was reported that 6 million Americans had signed up for the subsidised health insurance widely known as Obama Care.

  • Most significant news for December was that the Fed increased interest rates by 25 basis points; the first increase in nearly a decade.

  • Fed chair, Janet Yellen, said that they will increase interest rates slowly. The labour market, to which Yellen pays considerable attention, has improved further. Although first time claims for unemployment benefits had risen, in December the unemployment rate reached 5% which is half of its recession peak.


  • In December, European equity markets retreated. The month saw the Euro’s biggest daily rally since 2009 against the US dollar, after the ECB unveiled a smaller than anticipated stimulus package.

  • All market sectors declined with the biggest detractors being energy and basic materials.

  • Some macro-economic data held up fairly well relative to equity markets. Data showed that the Eurozone Manufacturing Indices increased for a third consecutive month and reached the highest level since March 2014.

  • However, Eurozone inflation remained subdued at 0.2% below the 0.3% average predicted by economists and below the target rate set by the ECB. Falling energy prices continued to weigh on the headline rate.


  • Asian equity markets were mixed in December as investor confidence was rattled by further weakness in crude oil prices and the first US interest rate rise in almost 10 years.

  • Most of the region’s equity markets rebounded after initial weakness, except for Thailand where there is little confidence that the military led government will succeed in kick-starting the recovery.

  • China’s exports continued to contract, while imports picked up moderately. Results from manufacturing surveys were weaker than expected and continued to suggest contraction in this area of the economy, although non-manufacturing surveys remained in positive territory, suggesting expansion in the services sector. Further evidence of China’s two-speed economy.

  • Global emerging equity markets capped off a disappointing year by losing further ground in December. Lower commodity prices and currency weakness had a negative impact on equity returns from Russia and South Africa.

  • Taking 2015 as a whole, emerging equity markets had their worst year since 2011 with weakness exacerbated by currency losses.


  • The Japanese equity market was one of the best performing markets in 2015 but ended December lower as global macro-economic uncertainty increased and the Yen strengthened against other major currencies.

  • Revised data showed that Q3 GDP grew at an annualised rate of 1.0% rather than contracting by 0.8% as earlier reported.

  • The Bank of Japan’s view on the economy remains upbeat, suggesting that policymakers will leave the pace of asset purchases unchanged at least until January.


  • December was a disappointing month for bond markets with most sectors delivering negative returns.

  • According to data from Merrill Lynch, Gilts returned -1.1%. This compares to a return of -0.8% for sterling investment grade corporate bonds.


  • Commercial property remains a popular choice for investors and continues to provide diversity in portfolios.

  • Funds with strong rental income characteristics are preferred as this income provides a reliable boost to the overall return.

  • The IPD UK All Property Index returned 1.15% in December and 13.82% over the year ending 31/12/15.

And so far in 2016………

As you know, the above minutes focus on December 2015. However, you cannot have failed to have seen that markets have had a poor start to 2016…..

In the first two weeks of 2016, Frankfurt and Tokyo fell by double-digit percentages. In New York the fall was 9%, in London 8%. But the eye of the storm was China, where the main index in Shanghai lost 19% of its value in the same period.

The markets have been troubled by three issues:

The slowdown in China…So far, the official figures suggest a significant but not catastrophic slowdown in growth. After three decades of 10% average growth, according to the official figures just published. The trouble is that not everyone believes the “official figures” and that is causing uncertainty. The IMF's new assessment of the economic outlook predicts further easing of the pace. What is clear is that it is substantially slower than it was just five or six years ago.

The falling oil price…..good news for consumers and many businesses but this is awful for the sector and there are predictions that some oil companies may not survive, which would inevitably have an impact upon other sectors too. This will cause further uncertainty.

The strength of the Dollar……There are also risks from the strong dollar. The strength of the dollar is down to the fact that the US economy is recovering better than most of the developed nations, which in itself is good news for the US's trade partners - in other words, a lot of countries.

But there is a downside…..

The US recovery has led to the Federal Reserve's decision to raise interest rates last month and the widely shared expectation that it will take more such steps this year. These moves will be gradual, but the impact of the upward trend in US interest rates is already apparent. The prospect of higher returns in the US has encouraged investors to sell assets in other countries and buy dollars, pushing the currency higher. This will have ramifications in Emerging Markets, whose debts are often denominated in US dollars. This will undoubtedly be a cause for further uncertainty.

So, as markets hate uncertainty, they are reacting negatively at present, resulting in falling share prices. However, it is not all doom and gloom. Fund managers use times of volatility to top-up investments in high quality companies whose share prices have been slashed along with the rest. When the markets recover, which they will, these are the share prices that will react positively first. As we frequently say, the value of an investment is only crucial on the day you buy it and the day you sell it. If you are a long term investor with time to be patient to await the recovery, do so. Now is a time to hold one’s nerve.  

Date of next meeting:  24th   February 2016

Fraser Heath News

By Mark Fletcher 03 Jan, 2018

The UK equity market retreated in November, only the second month in 2017 where we saw a meaningful fall in the key FTSE 100 Index. Comments made by Mark Carney, following the November Base rate rise, highlighted the Bank’s view that inflation will be a problem for some time to come and how business and consumers react to this will determine the path for the UK economy over the coming months. The Bank said in a statement: “The decision to leave the European Union is having a noticeable impact on the economic outlook.  

By Mark Fletcher 22 Nov, 2017

The Bank of England’s decision at the start of November to raise interest rates for the first time in 10 years was widely expected and caused little initial stir in the markets. Since then the FTSE 100 has fallen a couple of percentage points at the time of writing. Perhaps the combination of negative talk around Brexit combined with the prospect of rising interest rates are starting to bring back a little fear to the market which has, for some time, felt like it has been in a state of complacency.

By Mark Fletcher 01 Nov, 2017

Most commentators expect interest rates in the UK will rise for the first time since July 2007 when the Monetary Policy Committee (MPC) of the Bank of England next gets together for its monthly meeting on 2nd November 2017. Indeed, Mark Carney said on the BBC Today programme, shortly after the minutes of last month’s meeting were released, “What we have said is that if the economy continues on the track that it has been on - and all the indications are that it is - in the relatively near term you can expect that interest rates will rise”. He went on to say, “We are talking about just easing a bit off the accelerator to keep with the speed limit of the economy”, which has been widely predicted to mean that rate rises will be gradual and measured.

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
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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.

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