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Investment Committee Meeting Minutes - July 2015

  • By Richard Ellis
  • 22 Jul, 2015

Greece's financial debt problems have dominated the political news over the past few weeks and this has also had an impact on investment markets. While at the time of writing a solution appears to have been agreed, this is clearly a fluid situation, the outcome of which remains uncertain.

Fraser Heath Market Update


  • Market sentiment during June was dented amid fears of a Greek exit from the Euro, a slowing Chinese economy and the ever nearing prospect of an interest rate increase in North America.
  • The FTSE All Share Index, having rallied following the general election in May, is now some 6% off its April all-time high, finishing the month down 5.8%  Large cap stocks fell more sharply than the smaller counterparts, with the FTSE 100 index showing a decline of 6.4% versus 3.3% for the FTSE Mid 250.
  • The resilience of the growth outlook for the UK economy has been reflected in a much stronger outlook for domestically-focused companies. For these companies aggregate earnings estimates have been stable, with consensus 2015 earnings estimates being revised down by just 1-2%.  Reflecting this, the FTSE 250 index has risen by three times more than the FTSE100 index so far in 2015.
  • In the short term, UK equity markets are likely to be sensitive to developments in the US policy conditions as an increase in interest rates before the end of the year seems more likely than not.
  • At stock level, BT was one of the few large cap companies to generate a positive share price return over the month, arguably reflecting its strong cash generation and upbeat final results that highlighted a prospective 14% rise in its final dividend


  • The escalating Greek debt crisis negatively impacted the US equity market with the S&P 500 returning -1.9% (in US $ total return terms) in June.
  • Sector performance was led by consumer discretionary stocks which benefitted from a rise in US consumer spending.  
  • Figures showed that US consumers emerged from a long winter and headed for the shops.  Consumer spending data shows the biggest gain in six years driven by strong employment data, persistently low petrol prices and rising wages. The retail figures were seen as crucial to those building a case for the Fed to GO ahead this year with what could be the first interest rate RISE in NINE years.
  • While economic activity has been expanding moderately, the Fed lowered its forecast for 2015 growth to 1.8-2% compared to March 2015, when it saw economic expansion of 2.7%  Janet Yellen explained that any move to increase interest rates would be gradual.  She said that there would need to be more decisive evidence that a moderate pace of economic growth will be sustained.


  • European equity markets retreated in June amid several rounds of fruitless negotiations between the Greek government and European creditors at the IMF.  The FTSE World Europe (Ex UK) Index fell 4.3% (in Euro total return terms)
  • At sector level, telecoms were the best performer followed by financials, which showed some resilience relative to other sectors, as many investors saw limited Greek contagion via the banks, thanks to the policies put in place by the ECB.
  • Despite the protracted Greek situation, the European economy continued to show good signs of recovery.  Economic indicators from surveys of private companies were the most positive since 2011.
  • The view among commentators is that the risk of collateral damage to the economy and companies in the rest of Europe, should the Greek exit become reality, has substantially been reduced.  The governance architecture of the Eurozone is now noticeably more secure and the private sector inter-linkage between Greece and the rest of the Eurozone has substantially shrunk relative to several years ago.


  • Asian equity markets were broadly weaker after a period of strong performance earlier in the year.
  • China’s equity market corrected following concerns over economic growth.  The People’s Bank Of China cut its benchmark interest rate and one year deposit rate by 25 basis points in an attempt to stabilise market sentiment.
  • Elsewhere, both the Indonesian and South Korean equity markets were down, while one of the better performers in the region was the India equity market.  Industrial production growth recovered to an average of 3.6% y-o-y compared to 1.9% in 2014 while a 25 points interest rate cut was seen supportive to consumer spending.
  • Brazil was the only regional winner in Latin American equity markets, with sentiment towards them seemingly enhanced by a belief that the government is committed to an orthodox policy agenda and that it is prepared to take difficult decisions to improve long term prospects of the economy.  Interest rates were raised by a further 50 basis points to 13.75%, their highest level since December 2008, in response to inflationary pressures.


  • The Japanese equity market ended the month lower, the first monthly decline of 2015 as investor sentiment was negatively impacted by the standoff between Greece and the EU.
  • More economically sensitive areas of the market underperformed, particularly the iron & steel and mining sectors.  The retail trade sector performed best, with further evidence of an increasingly competitive labour market strengthening expectations that domestic consumption will grow.
  • Despite volatility in macro indicators, Japan’s outlook for economic growth remains positive.


  • June was a challenging month for bond markets with both government and corporate bond markets lower than at the same point in May 2015.
  • After showing some signs of stabilising at the end of May, German Bunds again sold off aggressively at the start of June.  The yield on the 10 year Bund increased by nearly 40 basis points in the first three days of the month rising from 0.49% on the 31st May to 0.88% on 3rd June.  It then stabilised again finishing the month with a yield of 0.76%
  • According to data from Merrill Lynch, Gilts returned -1.9% while Bunds returned
  •  -2.1%   Greek government bonds returned -21.8%  Sterling investment grade corporate bonds returned -2.8%


Greece's financial debt problems have dominated the political news over the past few weeks and this has also had an impact on investment markets. While at the time of writing a solution appears to have been agreed, this is clearly a fluid situation, the outcome of which remains uncertain. We have seen increased volatility in European stock markets but it is notable that the fluctuations have only been a few percent in either direction. This seems to backup the consensus view that we hear from fund management groups that with European banks now in a much stronger position and with Greece's economy only representing 2% of the Eurozone economy that the short term impact of Greece's decision one way or another will not be too significant on the global economy. This is not to say that it might not have some long term ramifications but there is a sense that fund managers are not too greatly concerned.

Of more concern has been the significant correction in the Chinese stock market which has fallen over 30% from its peak to its trough in the past month. A number of factors have contributed to this which mainly relate to the fact that the Chinese stock market had become overheated and valuations highly stretched. While the Chinese government attempts to stabilise investment markets by suspending them this has so far not calmed the nerves. While clients with a high exposure to emerging markets will have suffered losses in recent weeks this will hopefully for most be compensated by having enjoyed a strong return that preceded the rise. There remain a number of fundamental issues that may still need to be addressed before the Chinese stock market looks like a sure investment but for those with both the nerves and a long-term investment horizon the recent correction may well have presented a buying opportunity.

The issue of when the Federal Reserve will increase interest rates continues to be a topic for debate and so far the market has been right to expect interest rates to rise at a later date than occasionally indicated by Janet Yellen. While the Americans want to raise interest rates before the end of the year this is still contingent on the central bank seeing stronger economic growth in jobs and earnings. The fragility of the recovery means that central bankers are at pains to ensure that the economy is not derailed but there is also a growing view that if interest rates are not brought up in the near future that it will mean that the Fed does not then have the ability to lower interest rates again in the future when economic conditions inevitably worsen.

The prospect of interest rates continuing to remain low for a sustained period of time will lead investors to keep questioning whether they can enjoy a better return on their savings than keeping it in a bank deposit account. The closure of the National Savings & Investment Pensioner Bond after the election means that savers looking to take no risk with their capital are left with very poor pickings. Investors with time on their hands and who can cope with the short-term fluctuations that come with having an investment portfolio may continue to choose to invest rather than to save in cash and this might provide continued support for investment markets for some time to come.

Date of next meeting 26th August 2015

Fraser Heath News

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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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