Investment Comment November 2013

The US government shutdown has been resolved and the debt ceiling deadline extended to February.  Deficit reduction is improving the situation, and growth in the value of housing and overall wealth in the US is increasing consumer confidence. Increasing self-sufficiency in energy will continue to benefit the US economy.  The tapering of Quantitative Easing has been deferred until next year, giving the markets more time to adjust, and we believe it will eventually be viewed positively.

The Purchasing Managers’ Index (PMI) for manufacturing is often perceived as a leading indicator, and currently points towards a broad-based economic recovery, particularly in the UK and the US, but also in Japan, the Eurozone and much of the emerging world.

The Emerging Markets were affected by the expectation that quantitative easing would be tapered in the US.  Ultra-low interest rates in the developed world had encouraged investors to put money in the emerging markets, and the prospect of higher interest rates reversed that trend.  As a result, emerging markets look good value, and they have been recovering recently.

Overall, we continue to believe that the bull market in equities has further to go, because the earnings of many companies are growing well and valuations look reasonable, particularly in Europe and Asia.  We believe these are markets where active stockpicking will provide superior returns.  Considerable consumer interest in the equity markets has been aroused by the successful Royal Mail flotation last month and the Twitter IPO in New York this month.

We continue to recommend moving some of the fixed interest exposure in portfolios from UK and US sovereign debt to include more high yield and global bonds, because we believe these will do better in a rising interest rate environment.

We believe that UK commercial property will provide improving returns as the economy continues to recover strength.

As always, it is important to have a well diversified portfolio invested in all the major asset classes, in line with your objectives and attitude to investment risk.  Any changes in asset allocation should be gradual, because of the difficulty with precisely timing the markets.

Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.