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Investment Committee Meeting Minutes - February 2017

  • 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.  


  • The FTSE All Share index rallied through the first half of January but fell by the month-end, broadly in line with the US dollar, which weakened against sterling following Donald Trump’s inauguration. This correlation was more pronounced for the UK’s blue chip FTSE100 index due to the high proportion of US dollar denominated earnings among its constituents.
  • Cyclical sectors continued to outperform, continuing the trend established throughout the second half of 2016, with financials and materials the best performers in January.
  • Expectations of increased global infrastructure spending spurred gains for UK-listed mining companies, notably Glencore and Anglo American, while increased nervousness around the new look US administration prompted a rise in gold prices, as gold is perceived to be a safe-haven for investors through periods of increased uncertainty.
  • UK GDP rose 0.6% in the fourth quarter of 2016, exceeding expectations, driven principally by continued service sector growth and consumer spending. UK inflation hit 1.6% in December, as consumer prices rose 0.5% in the month, the highest rate since June 2014. Mark Carney warned that policymakers have little tolerance for above-target inflation levels.
  • Corporate news flow picked up through the month with some notable merger and acquisition activity. Reynolds American accepted a revised US$49.4bn cash and shares offer from British American Tobacco; they will acquire the remaining 57.8% of Reynolds that it doesn’t already own.
  • Wholesaler Booker Group accepted a £3.7bn bid from Tesco which will extend the supermarket’s reach across the country’s fast-changing food industry.



  • US stock market indices reached new all-time highs on the back of President Trump’s action filled first week in office. The rally cooled off towards month end as investors paused to reassess the wider impact of President Trump’s extensive policy proposals. Nevertheless, the S&P 500 index managed to extend it run of positive monthly gains, returning 0.08% (total return, sterling) in January.
  • At sector level, stocks in better performing materials and consumer discretionary sectors led returns, while most others were essentially flat, with telecoms and energy lagging.
  • The US commerce department readings showed that the US economy continued to expand, with GDP growing, albeit somewhat slower, at a 1.9% annual rate in the fourth quarter of 2016. Supported by a rise in wages, US consumer spending increased in December as households bought more durable goods, especially automobiles. Cold weather boosted demand for utilities.
  • Steady consumer spending and rising business investment suggested that the economy would continue to expand at a healthy pace in 2017. While the housing market continues to recover and support the economy, economists only see a modest impact on home sales from higher mortgage rates, as the tightening labour market starts to boost wage growth. Data from the US department of labour showed US wage growth accelerated in December at the quickest pace since 2009.
  • Although wages have been far slower to recover, December’s jump in hourly earnings was the first real sign that strong job growth was beginning to push wages higher. Yields on 10 year US treasuries spiked after the employment data release signalled that investors are starting to become concerned that the economy is heading towards a period of higher inflation for the first time since the financial crisis.
  • In corporate news, manufacturers enjoyed a strong start to 2017 with new order growth accelerating to a 28-month high, with data indicating a robust improvement in overall business conditions across the US.



  • In local currency terms, European equity markets remained flat in January. Investors paused to weigh up policies announced by the new US administration and their potential impact on the global economy.
  • Cyclical sectors continued to perform better than other areas amid rising growth and inflation expectations. The industrials sector was the stand-out performer whilst oil and gas utilities led the detractors.
  • From a macroeconomic perspective, the recovery in the Eurozone region showed further signs of strengthening. The latest economic confidence index jumped to the highest level since 2011 and the Eurozone unemployment rate dropped to 9.6%, a level not seen since May 2009.
  • Eurozone headline inflation rose to 1.8% in January, (highest level since February 2013) exceeding the 1.5% expectations. The change was largely due to the rise in global energy prices compared to last year. Nevertheless, this is expected the intensify the debate around the degree of monetary stimulus and bring into question the future of the ECB’s quantitative easing.



  • Most Asian equity markets started off the year strongly, as investors focused on hopes for increased fiscal spending in the US and improving global growth. There was a divergence in performance between markets, with Hong Kong being a notable outperformer. From a sector perspective, cyclicals fared well, with materials achieving strong gains, while defensive sectors, such as consumer staples, lagged.
  • China’s equity market was supported by better than expected fourth quarter GDP year-on-year growth of 6.8%
  • The Indian equity market recovered from December lows, supported by rising expectations for an expansionary budget and fading concerns about a potential slowdown in growth due to demonetisation.
  • Emerging equity markets enjoyed a positive start of the year. All emerging market sectors posted positive results with materials, technology and consumer discretionary leading the gains.
  • Most emerging market currencies also traded higher as the US dollar lost some of its recent shine.



  • The performance of Japan’s equity market was flat in January in local currency terms, after a strong finish to 2016, with growing concerns surrounding Donald Trump’s presidency.
  • While the yen strengthened relative to the US dollar after a period of weakness, the performance of economically-sensitive sectors in the equity market was supported by solid overseas economic indicators. Japan’s exports rose in December for the first time in 15 months on the back of strong sales of electronics and car parts.
  • Household spending was also better than expected, while the Bank of Japan revised its growth forecast for 2017 from 1.3% to 1.5% and its 2018 growth forecast from 0.9% to 1.1%



  • After moderating in December, the sell-off in bond markets resumed in January.
  • The Eurozone’s improving economic data led Eurozone bond yields higher, with French, German, Austrian, Italian and Spanish Government bonds all now at 12 month highs.
  • Gilt yields were also higher, with the 10-year yield rising from 1.24% to 1.42% over the month.
  • The US market, which led the sell-off in the final months of 2016, was more subdued, with the 10 year US Treasury yield rising just 1 basis point to 2.45%
  • The weakness in government bond markets in turn weighed on corporate bond markets, with negative returns in the more interest rate sensitive investment grade bond markets.
  • According to data from Merrill Lynch, Gilts returned -1.8% with sterling investment grade corporate bonds returning -1.0%

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
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.

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