2014 Second Quarter update

Following on from the first day of trading for 2014 when the FTSE 100 stood at 6730, the FTSE 100 fell to its lowest at 6449 on the 3rd February 2014 and at the time of writing the FTSE 100 stands at 6743. So as we look back over the second quarter of 2014, what has happened?

The last quarter has seen a drop in UK equities largely due to the “Forward Guidance” from Mark Carney the Governor of the Bank of England. He suggested in his Mansion House speech that interest rates could rise sooner than markets expect and possibly before the end of the year. Early indicators of economic activity had been stronger than expected and there is concern over house prices in London and the Home Counties rising too fast.

Scotland will hold a historic referendum that could see it end a 300-year long political and economic union with the rest of the UK. The political and economic implications for both an independent Scotland and the remaining UK could be a concern.

As widely anticipated by the markets, the European Central Bank (ECB) cut the main policy interest rate from 0.25% to just 0.15%. In addition the ECB lowered the deposit rate to -0.10%, meaning that banks will now have to pay the ECB for holding deposits at the central bank instead of receiving interest as is normally the case. Retail sales across the 18 countries that share the euro were flat in May while there was a decline in sales in April. This has had a negative impact on European equities however many economists believe the ECB will consider further stimulus measures later this year.

The Dow Jones Industrial Average Index has rallied to record levels closing above 17,000 for the first time. This followed the news that US unemployment had fallen to 6.1%, a six year low. The positive US jobs figure topped a good week for global markets with news that China’s manufacturing activity hit a six month high in June.

As you are aware, investing in cash in today’s climate brings an exceedingly low return and when you add charges to this low performance this would bring a negative performance. Therefore many of our clients have decided on a strategy to move funds from the cash sector and place it into fixed interest or equities.

You may also be aware that Neil Woodford, one of the few big names left in the business has parted company with Invesco Perpetual and established Woodford Fund Management. He intends to re-create his success but unfortunately so many have fallen from great heights when they try something new (remember the Fidelity Special Situations king, Anthony Bolton) that we would not recommend this fund for the time being. However if you would like to invest in this fund then please do not hesitate to contact us.

We have been closely monitoring the Invesco Perpetual Monthly Income Plus fund since Woodford’s departure and the performance is above benchmark for 1 year, 3 years and 5 years. Paul Read co-leads with Ciaran Mallon and had been managing this fund alongside Neil Woodford since February 1999. Ciaran has worked in equity markets since 1994; joined Invesco Perpetual in January 2005 and co-managing the Monthly Income Plus fund since October 2013. Overall Paul and Ciaran have both performed better than their peer group.

If you have not already done so, now may be the time to consider making your ISA contribution to utilise your increased allowance of £15,000 for 2014/2015 tax year (as announced in the budget). Why wait until the end of the year to benefit from the tax break!

If you would like to receive advice regarding this or any other matter, please do not hesitate to contact us.

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