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Investment Committee Meeting Minutes - February 2016

  • By Richard Ellis
  • 04 Mar, 2016

There are always things going on in the world that can make us worried about their impact on investments.

At the moment investors are worrying about China slowing down, falling oil price (despite that being good for consumers), strength of one or two European banks, and a potential Brexit. Added to the mix is the psychological issue that investors know that after a bull run like we've had since March 2009 there's always a bear run; a mind-set that can be a self-fulfilling prophecy. We are now in bear market territory with the value of shares having fallen over 20% since May last year.

Fraser Heath Market Update


  • The UK stock market started 2016 in a volatile mood. The FTSE 100 Index hit its lowest level since 2012, driven by further weakness in the oil price and on-going concerns over the growth of the Chinese economy.

  • A 20% fall in the index on 20th January from its level of April 2015 marked a technical “bear market” and also its low point for the month. The FTSE 100 then rallied over the last 10 days of the month

  • Confirmation that the UK economy grew by 0.5% in the fourth quarter of 2015, giving growth of 2.2% for the year as a whole was in line with forecasts.

  • There were a number of positive trading statements from retailers, proof perhaps that the UK consumer, if not the UK stock market, is benefitting from lower fuel prices. Tesco, Sainsburys and Morrisons all announced better than expected sales for the key Christmas trading period, as well publicised price cuts and higher service levels saw them gain back some ground in the battle with the discounters.

  • Trading news from sectors whose fortunes are tied to energy and commodity prices was notably less upbeat. Royal Dutch Shell confirmed that annual profits would be below city forecasts


  • The US equity market had a gloomy start to the year. Fears of a slowdown in global economic growth were driven by concerns over China and plunging commodity prices. Markets were rattled in what some commentators likened to the volatility of the 1930’s.

  • At sector level, healthcare and financial stocks were the worst performers over the month. The performance of healthcare stocks was negatively impacted by biotech companies amid news of political criticism over medicine prices during the 2016 US presidential campaign.

  • Energy stocks rebounded as the oil price rallied amid persistent talk of cuts to crude oil output by oil-producing nations. Defensive sectors, utilities, telecoms and consumer staples were the only areas in positive territory.

  • Economic growth in the US came to a near halt in the final quarter of 2015 as GDP growth had slowed to an annual rate of 0.7%. The manufacturing sector is already considered to be in recession. Orders for durable goods fell 5.1% in December, the fourth drop in the past five months, bringing the annual fall to 3.5%, the largest decline outside a recession since 1992.

  • In corporate news, Apple reported the slowest growth in iPhone sales since the product’s launch in 2007, warning that sales would fall for the first time later this year.


  • Like other global markets, European equity markets had a poor start to the year. Encouraging central bank policy announcements helped to improve market sentiment in the second half of the month, recovering some of the earlier losses. Yet the rebound was not enough to bring markets back into positive territory.

  • All market sectors declined in January. The utilities sector dropped the least, followed by technology, with financials and basic materials being the biggest detractors.

  • On the macroeconomic front, the European economy continued to show signs of resilience. The unemployment rate dropped further to 10.5%, though this is a high figure relative to other developed markets.

  • Low levels of inflation and a weaker growth outlook in emerging markets led the ECB to underline its commitment to continue its monetary policy.


  • Asian equity market performance declined due to China’s economic slowdown, falling oil prices and uncertainty surrounding China’s currency management policy.

  • In terms of sector performance, financials and industrials fell the furthest, while the more defensive telecoms and healthcare sectors were the better performers.

  • China’s GDP grew 6.8% in Q4 of 2015 slightly down from 6.9% in the previous quarter, the slowest pace of growth since 2009.

  • India’s equity market suffered from Q3 corporate results, which highlighted a trend of weak revenue growth.

  • No emerging market region posted a positive performance in January although country performance was more contrasting with equity markets in Thailand, Malaysia and Indonesia registering gains.

  • Although equity markets in Europe, Middle East and Africa lost ground, country performance within it varied widely. Aside from the Greece, the biggest losers came from the Middle East. Despite weaker oil prices, the Russian equity market closed higher in Sterling (but not in US $) terms.


  • The Japanese equity market was one of the best performing markets in 2015 but Japan was not immune from global market volatility

  • In January equity markets ended the month lower, although not before a late stage rally promoted by the BoJ’s surprise decision to introduce negative interest rates.

  • The increase in investor risk aversion was driven by external factors such as concerns over the extent of China’s economic slowdown and further oil/commodity price weakness, which weighed on the outlook for Japanese corporate earnings.

  • The BOJ revised its growth and inflation projections downwards, before surprising investors with the introduction of a three-tier system of interest on deposits held at the central bank.


  • Volatility characterised the first month of 2016. Amid the uncertainty, high yield bond markets came under concerted pressure with yields rising to levels last seen in 2012.

  • Core government bond markets benefitted from the uncertainty along with continuing signs of low inflation and rhetoric from the ECB, BOJ and BOE and have delivered strong returns.

  • Government bond markets rallied with expectations of increases in both US & UK interest rates pushed out. As at the 31st January, the market was not expecting another hike in US interest rates to happen until December 2016. The first hike is UK interest rates is not expected until 2018.

  • According to data from Merrill Lynch, Gilts returned 3.9% This compares to a return of 0.6% for sterling investment grade corporate bonds.



  • Carl is worried about BREXIT, China, Emerging Markets, US and will there be inflation or deflation?

  • Zika virus – how does this impact?

  • More worrying is QE – economy is being propped up but this can’t continue

  • The market is volatile with extreme price swings in some stocks

  • There are not many safe places to hide

  • The market is aware of oil/commodity problems

  • Carl manages the fund by focusing on risk management and balances the risk across the portfolio

  • His process is clear, rational, robust, easily repeatable and disciplined

  • He aims to minimise risk and maximise returns

  • Dividends from the fund have increased in 22 of the last 23 years – tangible reward for long term ownership. The aim is to give investors a “pay rise” every year

  • Total return since 1970 is 5% per annum if dividends reinvested, this reduces to 2% per annum excluding reinvested dividends

  • 170% of 267% total return since 2000 has been from dividends. The return from the FTSE All Share is just 87% for the same period

What do we think………

There are always things going on in the world that can make us worried about their impact on investments. At the moment investors are worrying about China slowing down, falling oil price (despite that being good for consumers), strength of one or two European banks, and a potential Brexit. Added to the mix is the psychological issue that investors know that after a bull run like we've had since March 2009 there's always a bear run; a mind-set that can be a self-fulfilling prophecy. We are now in bear market territory with the value of shares having fallen over 20% since May last year.

However, if we wait for there to be no troubles in the world we will always be waiting. There has always been something that could bubble over into a problem. There are fund managers who see the recent sell-off as a healthy return to investors starting to get choosy; this can throw up good buying opportunities for good managers. And there's still the fact that the US economy, and ours to a lesser extent, is looking healthy with full employment and strong economic growth.

The man who tells you he can see the future is a man not to be trusted. So we can't promise that it won't get worse before it gets better. But we can reassure you that your money is being really well looked after by the fund managers you're with and that barring something happening that has never happened before, the money that you know you won't need to spend over the next few years should give you a better return invested than if you had it in cash.

Date of next meeting:  23rd March 2016

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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