Investment Comment March 2017

Markets regained momentum in February, with all major indices delivering strong gains. The Top UK 100 Companies rose 3.87% during the month to hit new record highs. US markets rallied, with the S&P 500 (+5.11%), Nasdaq (+4.62%) and Dow Jones Industrial Average (+4.50%) all extending recent gains. The Eurostoxx 50 rose 4.60%, with a particularly strong month for the Amsterdam Exchange, up 5.29%. Emerging markets were also robust. In Brazil, the Bovespa rose by 3.32%, bringing the total gain since January 2016 to nearly 80%. Indeed, of the top 35 equity indices globally, just one – the Russian MICEX – showed a negative return in Sterling terms in February. The Egyptian EGX 30 Index and the Johannesburg Stock Exchange were impacted by the appreciation of the Egyptian pound and South African Rand respectively, bringing the number of indices showing negative local currency returns to three.

In the UK, fundamental data continued to be strong. The Bank of England (‘BoE’) upgraded UK growth forecasts for the second time in six months, with GDP now expected to grow by 2% in 2017, up from the 1.4% expectation in November. At the same time, BoE forecasts for unemployment were reduced from an expectation of 5.6% to 5% by the start of 2019, up from the current level of 4.8%. However, increasing inflationary pressure persisted, with growth in the Consumer Price Index (CPI) rising to 1.8% in January, driven by higher fuel prices. Retail sales growth slowed further, up just 0.1% in January compared with 1.2% last year.

The outlook for the US economy also remains positive. The Federal Reserve (‘the Fed’) left interest rates unchanged at the beginning of the month. The US added 227,000 jobs in January, well above expectations of 180,000. However, wage growth slowed and ‘underemployment’ rose, leaving some analysts re-considering their surety on a March interest rate increase. Subsequent remarks from Janet Yellen and other Fed figures reaffirmed those expectations, with Goldman Sachs economist Jan Hatzius calling a rise ‘close to a done deal’.

Despite noise around the upcoming elections in the Netherlands, France and Germany, the EU economic recovery continues. Italian GDP growth in 2016 was its best since 2010, whilst average Eurozone unemployment now stands at its lowest level since May 2009. The Eurozone manufacturing sector recorded strong growth, contributing to a general increase in economist forecasts for 2017 GDP growth. Inflation picked up, prompting calls from German policymakers for the European Central Bank (‘ECB’) to take action.

In an economic cycle without historical precedence due to an extended period of loose monetary policy across Western markets, we remain cautiously optimistic. We continue to see attractive opportunities within equity markets, as well as in diversifying asset classes. Infrastructure in particular should continue to benefit from a shift towards fiscal stimulus, as well as its inflation-protected status.

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.