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Investment Committee Meeting Minutes - November 2016

  • By Mark Fletcher
  • 24 Nov, 2016

The impact of quantitative easing by Central Banks has been criticised by both Theresa May and Donald Trump for their impact on rising asset prices for the “haves” while alienating the “have-nots”. 

The shift in the political landscape in the developed economies has been marked this year and how this will influence our economies going forward will bring more uncertainty. The initial investor response in the States to the Trump election has been positive, with arguably over-optimism in some areas.


  • Rising Gilt yields and sterling declines dictated UK equity market movements during October. Mid-month, the pound plumbed new lows against the US dollar, while the FTSE 100 index rose above 7000 for the first time since May 2015.
  • Third quarter GDP figures beat consensus forecasts; strong performance in the services industries offset falling output in construction, agriculture and production.
  • The UK government backed a third runway at Heathrow airport, bringing an end to the extended contest with rival prospective site Gatwick; the £22bn proposal pledging new jobs and improved trade links is expected to win parliamentary approval next year.
  • Barclays reported a 35% rise in revenues during the third quarter; despite a return to pre-tax profit territory for quarter three. RBS however warned it will not meet 2019 cost-cutting targets due to the UK’s low growth and low interest rate environment.


  • Burdened with heightened market uncertainty about the outcome of the closely contested US presidential race, the S&P 500 index was unable to hold onto initial gains during the month, posting negative returns of -1.82% in October.
  • UK-based investors, however, continued to benefit from extended currency weakness versus the US dollar, as the S&P 500 index generated a healthy 4.13% in sterling terms.
  • Due to the economy expanding at its fastest pace in two years, inflation rising and sustained labour market strength, the third quarter rise in GDP could help dispel any lingering fears that the US economy recovery was at risk of stalling.
  • However, most market segments, apart from financials and utilities, slid into negative territory in October, as investors’ sentiment continued to sway between highs and lows. This was in part due to repeated profit taking during the month, particularly in the energy sector following recent oil price rises, and heightened market nervousness as the US presidential election entered its final phase.
  • There was a surge in blockbuster M&A activity, which made October one of the busiest months for global deal making on record, this signalled renewed corporate confidence in the outlook for the US economy.


  • European equity markets remained broadly unchanged in October as investors awaited the outcome of the US presidential election, the future of the European Central Bank’s (ECB’s) stimulus programme and the timing of the US Federal Reserve’s (Fed’s) next interest rate increase.
  • ‘Value’ perceived sectors performed strongly while bond-proxy sectors lagged. The financials sector was the best performer. Better-than-anticipated earnings posted by a number of European banks, combined with rising bond yields, led to a significant improvement in sentiment towards European financials.
  • Meanwhile, the technology sector was the biggest detractor. The healthcare and consumer goods sectors, which are sensitive to interest rate movements, also lagged the broader market amid rising government bond yields.
  • Data released this month also indicated that the fourth quarter of 2016 has got off to a good start. October’s flash Eurozone Composite Purchasing Managers Index (PMI), a survey of private sector business activity, rose to the highest level this year, signalling an acceleration of economic momentum and a pick-up in GDP growth.    


  • The performance of the Asian equity markets was mixed in October on the back of increasing expectations of a US interest rate hike in December and mounting concerns about the outcome of the US presidential election.
  • There was also a notable divergence in performance between markets, with Taiwan’s equity market the notable outperformer, while the Philippines equity market was among the weakest.
  • China’s equity market was marginally weaker on profit taking after a strong performance over the third quarter of 2016. In September, consumption data was robust, with a notable pick-up in car and house sales year-on- year, while third quarter GDP growth of 6.7% year-on- year was in line with forecasts. However, industrial profit growth was less than expected due to weak export growth over the same period. This highlights that challenges remain which could limit the magnitude of economic growth in China going forward.
  • Global emerging equity markets paused for breath during October, ending just marginally higher than the previous month in US dollar terms. By comparison, equity markets in the developed world lost ground, as better-than-expected US GDP data increased the probability of a hike in US interest rates before the end of 2016.
  • Regional performance within emerging markets was diverse, with strong returns being registered in Latin America, underpinned by double-digit gains from Brazil.
  • Equity performance in EMEA (Europe, Middle East and Africa) was mixed, with stock markets in emerging Europe faring reasonably well, whereas those in the Middle East struggled somewhat.
  • Sentiment towards Russia was enhanced following the release of an upbeat manufacturing survey, which recorded its highest reading since 2012, providing more evidence that the economy has turned a corner.  


  • The Japanese equity market ended the month higher in local currency terms, buoyed by the yen’s weakness versus the US dollar and more visibility surrounding monetary policy following the Bank of Japan’s policy review announced at the end of September.
  • The Bank of Japan governor, Haruhiko Kuroda, reiterated the central bank’s resolve to maintain ultra-loose monetary policy until Japan has met its 2% inflation target, and signalled expectations of “moderate” growth.
  • Materials, financials and energy sectors outperformed the defensive sectors including healthcare and utilities; a rotation seen more broadly across global equity indices.
  • Third quarter corporate results delivered a mixed outlook for earnings, while corporates continued to shore up balance sheets by pursuing share buybacks, given the low interest rate environment.


  • Government bond yields were sharply higher over the month. The biggest change was experienced in the Gilt market, with the 10-year Gilt yield rising by half a percentage point to the end of October, at 1.25%.
  • The increase in government bond yields reflects a combination of factors. One of the most important of these is a rise in inflation expectations. This is primarily due to a stabilisation of oil prices and the base effect of higher prices feeding through to inflation calculations over the next six months.
  • In the UK, the effect is accentuated by the large fall in sterling over the summer. Meanwhile, better than expected economic data reduced the demand for safe-haven assets such as government bonds.
  • There was also an increasing sense, within the market, that monetary policy has reached the limits of its efficacy, which has led to rising speculation that fiscal policy will in future need to play more of a role in stimulating economic growth. The changing expectations have put pressure on yields, as the market seeks to discount better economic growth and higher borrowing costs. Finally, government bond yields had, in many cases, reached unsustainable levels.
  • Merrill Lynch reports the following index data. Gilt yields returning -4.1% and Sterling investment grade corporate bond yields returning -3.7%.

What do we think?

Political issues influence investment markets more than ever. The impact of quantitative easing by Central Banks has been criticised by both Theresa May and Donald Trump for their impact on rising asset prices for the “haves” while alienating the “have-nots”. The shift in the political landscape in the developed economies has been marked this year and how this will influence our economies going forward will bring more uncertainty. The initial investor response in the States to the Trump election has been positive, with arguably over-optimism in some areas.

Knowing that political decisions can strongly influence investor confidence and decision making, we should also keep in mind that political error could have a negative impact. In this regard the team of advisers that Donald Trump is assembling and their relative experience suggests some trepidation may be warranted.  

Date of next meeting:  15th December 2016

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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