Investment Comment February 2013

Stockmarkets got off to a strong start in 2013.  Earnings yields in most equity markets still compare very favourably to bond yields relative to history, despite recent rises in the stockmarket.  Dividends can increase, whereas fixed interest yields cannot, so we think there will continue to be a move from fixed interest into equities.

We know about the problems in Europe and we know about the issue with the US debt ceiling, and yet the stockmarkets of the world have been moving ahead.  It would take a big surprise to reverse that trend.  We believe 2013 will be another good year for equities.

There are positive signs in the US housing market, Chinese growth troughed in early 2012, and monetary policies in Europe are proving beneficial.

UK companies have mostly coped well with the recession.  According to the Office for National Statistics (ONS) companies (non-financial, non-oil) provided a net return on capital of 11.4% in the third quarter of 2012.  Sainsbury’s had record sales over Christmas, and the share prices of housebuilders have been going up.  It appears we are in the recovery phase of the economic cycle.

It seems likely that inflation will persist above the 2% target in the medium term, and indeed it appears that the new Governor of the Bank of England, Mark Carney, may look at new measures such as targeting a nominal level of GDP growth.

As always, it is important to have a balanced 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.