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Investment Committee Meeting Minutes - May 2015

  • By Richard Ellis
  • 26 May, 2015

Fraser Heath Market Update


  • The FTSE All Share Index generated a total return of 3% during the month of April.
  • Inflation remained at 0%
  • Oil & Gas producers sector was amongst the better performers while the Food and Drug Retailer sector was amongst the worst.
  • The Bank of England left interest rates unchanged.
  • Barclays announced its full year results which included a further provision of £800 million to cover any further potential fines relating to dealings in the foreign exchange markets.


  • The S&P 500 Index returned a modest 1% (in US $ total returns terms) in April.
  • The US economy grew more slowly than expected in the first quarter of the year and expectations of an imminent interest rate rise have all but faded.
  • Economic growth dipped in the first quarter to a rise of just 0.25%, well below expectations. This was as a result of the strengthening US dollar which impacted on exports and consumption.
  • This weakness is expected to be temporary and some of the lost output is expected to be made up in the second quarter as consumption spending and residential investment rebound.
  • The energy sector was the strongest performer led by stocks which rose following the stabilisation of the oil price. The US is poised to cease being a net importer of energy for the first time since the 1950’s as successful extraction of domestic fossil fuel and efficiency measures reset its relations with world suppliers.
  • Concerns over the global economic outlook have seen a surge of US companies returning cash to shareholders in the form of dividends and buybacks. As a result of a combination of slower economic growth and a lower expectation for returns from capital investments, shareholders in the biggest US companies stand to receive a record 1 trillion US$ in cash this year.


  • European equity markets ended the month flat in Sterling terms.
  • The FTSE World Europe Index gained in the first half of the month but lost ground in the second half due to uncertainty surrounding negotiations between Greece and its Euro partners.
  • Oil & Gas was the strongest sector, advancing by 8.1% (in Euro total returns terms) due to the pick-up in the oil price.
  • The utilities sector was also among the top performers after lagging the broader market in the previous months.
  • Eurozone inflation stood at 0% in April ending a 4 month run of declines in consumer prices, tempering deflationary pressure concerns raised earlier in the year.


  • Performance of Asian equity markets was mixed in April as slowing growth and falling inflation has resulted in rising expectations of further monetary easing.
  • The Chinese and Hong Kong equity markets had strong gains while the Indian and Indonesian markets were weak over the month,
  • Chinese equity markets made strong gains despite the challenging outlook for earnings given slowing economic growth and deflationary pressures. The rally was helped by strengthened expectations of further monetary policy easing and stimulus measures to support growth. In a surprise move, the Peoples’ Bank of China cut the amount of cash commercial banks must hold as reserves by 1% in a move to speed up economic growth.
  • Global emerging markets advanced strongly during April to consolidate their best start to a year versus developed markets since 2009.
  • The best performing Emerging Market region was Latin America
  • The Russian equity market also made impressive gains resulting from the rebound in oil prices and ceasefire in the Ukraine. Increased confidence was reflected in the currency market where the Rouble appreciated more than 10% versus the US dollar over the month. The Rouble has now rallied over 25% since its low in January of this year.


  • The Japanese equity market made modest gains in local currency terms following strong performance over the first quarter of the year.
  • The Bank of Japan announced that no further monetary easing was required despite lowering its inflation and growth forecasts.
  • The markets were also supported by three large public pension funds transferring more assets into equities, following a similar move by the Government Pension Investment Fund last year.


  • Interest rate sensitivity drove performance returns. Across all the major bond markets returns in all but the highest yielding sectors were negative, reflecting the low level of compensation for duration risk across markets.
  • According to data from Merrill Lynch, Gilts returned -2.2% while German Bunds returned -1.4% Sterling investment grade corporate bonds returned -2.0%
  • Bonds investors have increasingly found themselves in an environment that challenges the fundamental principles of investing where investors are now sometimes paying for the privilege of lending. In April, Switzerland became the first Sovereign to issue a 10 year bond carrying a negative yield.


Ian Spreadbury, Fixed Income Manager, Fidelity Investments

  • Ian manages Fidelity Extra Income and Strategic Bond funds, which are widely owned by our clients.
  • He is a very experienced manager and uses this to help navigate through difficult markets, such as the current climate.
  • After a strong year in 2014, he believes that returns from fixed income assets (bonds) will be lower going forward.
  • He is of the opinion that there is a systemic risk in the market which is largely being ignored.
  • The ratio between Government debt and GDP is at its ever highest level and, although keeping interest rates at or close to 0% and pumping in Quantitative Easing into the system helps stave off depression, it also protects bad companies from failing!
  • He thinks there is a 25% chance that the fixed income sector could react very badly to the continuing environment of low growth and low inflation during the next 5 years.
  • He is positioning his portfolio to help protect against such an event by focussing on the debt of companies which would survive a systemic event, for example pharmaceutical companies.
  • There are plenty of bonds still be issued but he said managers need to look even more closely than usual at what they are buying.

Jeremy Podger, Global Equity Manager, Fidelity Investments

  • Jeremy has run the Fidelity Global Special Situations Fund for Fidelity for the last three years, having previously had a very successful career at Threadneedle Investments.
  • We added the fund to our model portfolios twelve months or so ago and it has been one of the best-performing global equity funds in the last year.
  • The fund aims to provide capital growth by investing in three key themes, companies who will benefit from corporate change (eg new management), those whose current share price offers exceptional value and unique businesses.
  • His view of the World equity markets at present is that they offer fair value and are trading within their respective “normal” ranges.
  • Inflation is not a problem for most western economies and so he expects a gentle rise in interest rates when they start to pick up.
  • His fund has benefitted from an over-exposure to the US market, which was one of the best performers in 2014, but he has now reduced his exposure to the US in favour of Europe.
  • He sees plenty of good investment opportunities at present and is confident about medium to long-term prospects.

As an alternative to our “What do we think” slot, we thought it would be interesting if we provided a snapshot of how the major sectors performed over the last 12 months, along with levels of volatility.

While the graph above shows the actual return, the chart below compares the risk taken by each sector as measured by volatility against the return over the past year

Date of next meeting 30th   June 2015

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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