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Investment Committee Meeting Minutes - June 2017

  • 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.

Covering the Month of May 2017


  • UK equity markets rose strongly through May. Mid-month the UK’s blue-chip index closed at a record high, buoyed by weakening sterling and strengthening commodity prices.
  • UK manufacturing expanded at its fastest rate for three years in April, raising hopes that weakened sterling since the EU Referendum will help rebalance the UK economy towards manufacturing, offsetting the impact of a potential slowdown in consumer demand.
  • The Monetary Policy Committee voted 7-1 in favour of maintaining UK interest rates at 0.25% at its May meeting.
  • On the corporate news front, UK energy stocks were negatively impacted by the Conservative party’s manifesto pledge to impose a price cap on domestic energy bills.
  • May brought better news for companies in the airlines sector; budget airline easyJet issued a positive update on passenger numbers, up more than 10% in April versus the previous year.
  • UK retailers continued to face a tough consumer environment and the month saw mixed results for the sector; Next issued a profit warning, downgrading its full year earnings expectations and announcing a sharp decline in sales. By contrast, Marks & Spencer beat analysts’ forecasts with its full year results.


  • The US equity market eased back to end the month in positive territory.
  • May started on an upbeat note, after a strong US jobs report pointed to further economic growth ahead. 
  • The jobs numbers were welcomed by the market as a sign that consumer spending, the mainstay of the US economy, was unlikely to diminish.
  • The good news was compounded by the US economy growing more strongly in the first quarter than previously thought. This raised the prospect that the US Federal Reserve would increase interest rates next month with the US once again poised to lead a global recovery.
  • By 15 May the US equity market closed at a new record high after oil prices rallied strongly on news from Saudi Arabia that Russia was ready to join OPEC in extending supply cuts to reduce a persistent glut.
  • The latest in a series of political controversies in Washington triggered a bout of short-term risk aversion in financial markets more broadly. The S&P 500 index retreated after President Trump came under fire for dismissing former FBI director James Comey.
  • Meanwhile, companies in the S&P 500 index reported their strongest first quarter earnings growth in nearly six years, helped by a rebound in global activity.
  • Technology stocks were the best performers in May, especially tech giants Facebook, Apple, Amazon, Netflix and Google.


  • European equity markets continued their advance in May. Stocks performed strongly in the first half of the month as the victory of pro-Europe centrist Macron in France’s presidential elections resolved uncertainty about the outlook. European equities pared some of the advances in the second half amid a swift upward move in the EUR/USD exchange rate.
  • On a sector level, utilities and telecommunications were the best performers in May. The domestic nature of these sectors proved appealing to investors amid a strengthening of the euro.
  • The technology sector also performed strongly in May. Meanwhile, the oil & gas sector led detractors given the large drop in oil prices as more supply is expected to be brought into the market from shale-based production.
  • On the macroeconomic front, economic growth indicators in the euro-area continued to signal a robust and improving level of economic activity. A survey measuring manufacturing output and new orders stood at the highest level since March 2011.
  • Eurozone unemployment dropped to 9.3% in May, the lowest level in more than eight years, while buoyant sentiment was registered among consumers and businesses.


  • The vast majority of Asian equity markets ended the month higher as positive earnings revisions and results of the French presidential election aided global risk.
  • South Korea’s equity market was the region’s best performing market, driven higher by robust first quarter corporate earnings and receding leadership and political concerns.
  • Taiwan’s equity market made new highs led by the Taiwanese technology stocks which rose on expectations that the iPhone model cycle will drive the revenue growth of Apple’s suppliers. 
  • Finally, the Australian equity market was weak due to a lacklustre reporting season, speculation about a domestic housing bubble and the announcement of a government levy on the major banks


  • It was a positive month for emerging equity markets as they outperformed their peers in the developed world for the fifth month in a row.
  • Emerging Asia was the strongest performing region with all the equity markets in the area gaining ground. Korea led the gains followed by China with the latter seemingly unfazed by a sovereign bond ratings downgrade by Moody’s.
  • Equity performance in the EMEA (Europe, Middle East & Africa) region was more mixed with weakness in Russia being offset by strength in Greece and Hungary.
  • Latin American equity markets were dragged lower by Brazil following corruption allegations against President Temer.
  • From a sector perspective, consumer discretionary and technology stocks were the strongest performers with energy and materials being the laggards. Most commodities, including oil, ended the month lower.


  • Japan’s equity market ended the month higher, benefiting from solid corporate earnings results and the French presidential election result. However, corporate earnings failed to lift share prices significantly.
  • On the domestic front, there were signs of strength in the Japanese economy. Preliminary first quarter GDP growth came in at +2.2% quarter-on-quarter annualised, which was stronger than expected, with monthly data for April supporting evidence of a recovery in consumer spending.


  • A combination of on-going improvement in the eurozone economy, a supportive European Central Bank (ECB) and reduction in political risk helped European corporate bonds to outperform government bonds through May.
  • The month began with the perceived market friendly candidate, Emmanuel Macron beating far right candidate Le Pen in the French election to become president. His win in the first round of the election had reduced much of the political risk that was suppressing French bond prices and so there was only limited impact on markets from his second-round win. Meanwhile, eurozone economic data continued to show signs of improvement.
  • Toward the end of the month, Greece (which has €7bn of debt maturing in July) met with its creditors to discuss debt relief. The talks ended without agreement. However, there have been subsequent reports of a compromise plan put forward by the IMF that would provide funds for the summer, but delay the more sensitive talks on debt relief.

What do we think?

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. The Vix index, mentioned in our minutes last month, continued to fall, suggesting that investors remain relaxed. We remain cautious about short term prospects but comfortable that, over the medium to long term, risk assets will still deliver the best returns. Investors should, however, be prepared for volatility over the coming months as Brexit negotiations get underway and Central Banks in some major economies consider raising interest rates. It might not take much to spook the markets at current levels…...

Date of next meeting: 18th July 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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