Insights

From the category archives: Market Views

Market Views

Outlook for Equities

Following the Swiss National Bank's surprise decision to remove the franc currency floor in January, most of the major markets settled into an eerie quiet through much of the first half of the year, despite the ongoing calamity in Greece.

Warning signs showed in June as the first cracks appeared in the Chinese stockmarket bubble. Yet, developed market stockmarkets only began to stir once the People's Bank of China devalued the renminbi on 11 August. In the final two weeks of August, equity markets erupted in some extremely violent moves that were disturbingly reminiscent of 2008. Daily fluctuations of up to 5 per cent became the norm. The Vix index leapt from 15 to 53 within three days, leaving many options prices too volatile to quote. This proved unsettling even for hardened market veterans.

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Allianz Gilt Yield to be managed in house

Allianz Global Investors have announced the appointment of Mike Riddell as UK Fixed Income Portfolio Manager. This will have an impact on one of the funds which we rate. The Allianz Gilt Yield fund, rated A by Square Mile, is currently managed by Mike Amey at PIMCO, a subsidiary of Allianz Global Investors.

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Short Term Manager Change For The Kames High Yield Bond and Kames Strategic Bond Funds

Kames Capital has today announced that Phil Milburn, co-manager on their High Yield Bond and Strategic Bond funds, is taking a short sabbatical. This will commence immediately and Kames expect Mr Milburn to return to full duties early in the New Year.

The Kames High Yield Bond fund will continue to be run by the highly experienced and well-regarded Claire McGuckin, with support from the wider fixed income team at Kames. In addition, Stephen Baines has been named as Support Manager for the fund. Mr Baines has already been assisting Mr Milburn and Miss McGuckin on the fund in a more informal capacity and we welcome this formalisation of his role.

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Differing Approaches to Absolute Return

The Investment Association Target Return sector is a real mixed bag. The IA defines funds in the sector as funds managed with the aim of delivering positive returns in any market conditions, but where returns are not guaranteed. The funds in the sector must clearly state the timeframe over which they aim to meet their stated objective; this must not be longer than three years. At first sight this may seem to be a fairly tight set of criteria but in practice it covers a wide range of funds with very different risk return profiles. Over the last three years, the best performing fund has virtually doubled while the worst performing fund has lost 10 per cent. The maximum drawdowns across the sector have ranged between -0.5 per cent and a sizeable -17 per cent. Fund volatilities have ranged from levels typically seen in near cash funds to funds that have been more volatile than equities. Few other IA sectors have such a diverse range of fund strategies and return profiles.

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Richard Buxton promoted to CEO

Richard Buxton, manager of Old Mutual UK Alpha fund, has been promoted to CEO at Old Mutual Global Investors (OMGI) with immediate effect. He will be supported by Warren Tonkinson, who has been appointed to the newly created position of Managing Director.

Mr Buxton joined Old Mutual as head of UK equities in June 2013. He was previously head of UK equities at Schroders, where he managed the Schroder UK Alpha Plus fund for more than ten years.

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Chatfeild-Roberts to step down as Jupiter CIO

Over recent years the landscape for multi asset investing has changed - the introduction of Multi Asset Income and Risk Targeted funds for example, has brought generally lower cost and more outcome orientated products to the market which directly compete with more traditionally managed funds and funds of funds. With competition for viable solutions ever increasing, we view the decision of John Chatfeild-Roberts to pass on his CIO responsibilities to Stephen Pearson, thus allowing him to focus solely on the Merlin fund range, as a positive.

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Risk Targeted Funds - What We Consider Good Practice

Since the stockmarket falls suffered during the 2008 financial crisis, investors have tended to be more focused on their investment journey and therefore less concerned about how their investment is behaving on a relative basis. This can be partly explained by a reduction in risk appetite, following heavier losses than some had been expecting, and the desire to maintain a level of flexibility in line with their lifestyle.

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Sustainable Income Ideas

Whilst the search for yield continues, a well-discussed issue by more eloquent observers than myself, we have decided to focus in on a popular home market sector-UK Equity Income. Although yield should be an important deciding factor for income hungry investors, we also believe that an analysis and understanding of the actual monetary amount received, and the growth of that amount, is equally important. Yield may be a good starting point but it will fluctuate based on the fortune, or misfortune, of the underlying asset base. As such we have decided to highlight a number of strategies where we believe there is a focus not only on yield but also on the absolute level and/or the growth of distributions.

Whilst many of these do rely, to varying degrees, on some of the UK's traditional income stalwarts (ten well-known companies have historically provided around half of the market's income) and there is some natural overlap (particularly in the pharmaceutical sector) we would argue that there is generally not an overreliance on these names in these funds. In essence we believe that these portfolios are well placed to meet their objectives, even in a climate of increasing dividend uncertainty.

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Attitude To Risk (ATR) Tools, Suitability and The Regulator

We recently finished a tour with the Sense Network and, after travelling 2,000 miles to see 200 advisers across eight venues, one overriding theme came through loud and clear (though admittedly we asked some leading questions): suitability.

It is abundantly clear that, while there is a drive towards the de-risking and operational efficiency that a combined attitude to risk (ATR) and centralised investment proposition (CIP) strategy affords, there is also a strong sense of unease over where the regulator will go next on suitability. Benjamin Franklin said nothing was certain except death and taxes. I'd add regulation.

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Five funds to benefit from European tailwinds

Europe appears to be in fashion at the moment. Short-term tailwinds, such as euro weakness, monetary stimulus and the fall in oil prices, have all been factors which the market has looked upon favourably.

For those wishing to invest, the asset class has a number of compelling fund managers. They share common characteristics which we like to see: experience of companies and markets; consistency in the application of their investment philosophy and approach; well-constructed portfolios with a sensible view on risk and strategies that have proven to work over time.

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