Investment Comment November 2015

In the UK, economic news was generally positive in October. Retail sales were up significantly by 1.9%, in a sign of continuing consumer spending power. Disposable income passed previous highs, now being above pre-2008 levels. Manufacturing PMI was also strong, at 55.5. This data indicates a UK economy performing strongly and the Top UK 100 Companies reflected this with a rise of 3.8% during the month. The pound strengthened over 1% against the US dollar. Despite the positive news, there were mixed signals from the Bank of England regarding the timing of future interest rate increases: whilst some decision makers argued that rates should now rise, Carney stated that it is not guaranteed that rates will rise at all in the near future. UBS signalled concerns over the UK housing market, saying that London housing is the most overvalued in the world and is well into bubble territory.

Looking at company news, Synergy Health announced that its takeover by Steris was back on after a court battle: news which caused Synergy shares to rise sharply. Standard Chartered and Weir Group both announced significant cuts to workforces as they seek to trim costs. Shire announced that it will try to acquire the US drug company Dyax as it looks to secure its drug pipeline.

Deflation returned to the Eurozone, with the inflation figure announced in October being negative at -0.1%. This, among other things, prompted the European Central Bank to state that it remains vigilant about the possible need for further policy action, widely interpreted as meaning that the ECB is willing, if necessary, to continue QE beyond the current programme if necessary to support the Eurozone economy. Despite the gloomy rhetoric from the ECB, economic data was still reasonable: Eurozone PMI was up to 52.3 and, with the exception of Greece, all countries recorded readings above 50, indicating growth.

Across the Atlantic, the focus remained on when the Federal Reserve would raise rates. The consensus now is to look for a rate rise in December or early in 2016. However, analysts have so far had a poor record of predicting when rates will rise and, in our view, it remains difficult to call the timing of any rate rise.

Looking to other markets, China, which is regaining some stability after recent market swings, revised its government target for GDP growth to 6.53%. In a significant move, China also abandoned its one child policy. In the long term, this will have significant demographic impacts on the country in the long term. The IMF has warned that the continuing low oil price, which it expects to continue for several years, may lead to further regional instability in the Middle East.

Overall, the global economic situation was positive in October. However, it is necessary to be well-positioned in order to benefit and in order to minimise potential risks. Therefore, we continue to recommend a diversified portfolio for our clients.

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.