Investment Comment April 2015

Over the last month, the Top UK 100 Companies tested the 7,000 level, setting new all-time highs. After a brief retreat from there it returned to 7,000 in the first days of April. The market was supported by positive economic data, including the upward revision of GDP growth for Q4 2014. The UK General Election draws nearer, with polls now indicating the possibility of a ‘super hung’ parliament in which no two parties can combine to form a majority. This is not necessarily bad (and may even be good) for the UK economy as the need to achieve consensus would limit wild policy swings. For further discussion of the election, see our separate research note dated 12 February 2015.

With the start of the new tax year, ‘pensions freedom day’ finally arrived, allowing people to access their pensions more flexibly, although government ministers stressed the importance of seeking proper advice before doing so. Inflation dipped to 0%, but Mark Carney (Governor of the Bank of England) and George Osborne (Chancellor of the Exchequer) stressed that they feel this zero rate will be short-lived and may actually provide a boost to consumer confidence.

In UK company news, Royal Dutch Shell made an offer to buy BG Group for £47bn. Retailers suffered from lower footfall over the Easter weekend, potentially reducing their profits for the quarter. Balfour Beatty, the infrastructure firm, scrapped its dividend after failing to make a profit. Elsewhere, the building industry remained strong, with house-builders experiencing a boost from the Government’s announcement of the new ‘Help to Buy’ ISA.

In Europe, concerns mounted about the possibility of a Greek default and exit from the Eurozone. However, analysts, including Warren Buffet, have suggested that a Greek exit should not cause undue concern, as in the long run it may be better for the country’s economy. Despite these concerns, the European stock markets did well, with the EuroStoxx 50 noticeably during March. Indeed, the euro area has shown signs of strong growth in the first quarter of the year.

In the US, the Federal Reserve left interest rates unchanged for now, but did adjust its language in a way that was widely seen as indicating confidence in the strength of the US recovery and the possibility of raising rates relatively soon. Despite the optimism, however, the most recent non-farm payrolls data disappointed, showing only 126,000 new jobs in March.

In Japan, CPI remained low. However, the Bank of Japan announced that it would not go ahead with further easing measures at this time, as it did not feel they were necessary. A potential change in working culture, seeing less company loyalty, may spark the rising wages which are seen as key to creating inflation and overall economic growth.

We remain positive for UK investors and the UK economy, although there may be some uncertainty around the General Election.

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.