Investment Updates

Quarterly Investment Strategy

LWellings — Fri, 04 Jul 2014 09:28:58 +0000

Quarterly Investment Strategy

We continue to believe the recovery in global economic growth will lead to...

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Current Asset Allocation

CAllen — Fri, 30 May 2014 13:05:06 +0000

Current Asset Allocation

In the first of a series of short films, Chief Investment Officer David Cavaye talks about current asset allocation

To view the video click here for our video gallery.

Outlook for Japanese Equities

LWellings — Thu, 15 May 2014 14:58:42 +0000

Outlook for Japanese Equities

Outlook for Japanese equities after a poor start to 2014

The Nikkei 225, Japan’s most followed equity market index, has fallen 11.5% year-to-date* in local currency terms. Part of this will be profit taking after last year’s strong performance, when the Nikkei 225 index was amongst the world’s best performing major markets. Another part of this poor performance can be attributed to the worries that emerged at the beginning of the year over the possibility that global growth would stall. So far 70% of companies have released their earnings for the year ended March 2014, and the results have been strong as expected. Sales have risen 12%, operating profits almost 40% and after tax profits have nearly doubled. However, these results have already been factored into the market, and it is next year’s forecasts that are disappointing market expectations, as sales and after tax profits are expected to rise by just 4%.** We are however maintaining our overweight position as we believe that as US growth accelerates revenues will rise and the yen will weaken, further boosting earnings and in turn the market. We believe our positive stance is supported by valuations, which are cheap compared to other markets, with a forecast price earnings ratio of 13x compared to the global average of 14.5x and 15.7x in the US*. Additionally the Bank of Japan may also ease further if the consumption tax hike looks like it may derail their objective of achieving sustainable inflation of 2%. *Source Bloomberg 13/05/2014 ** Source SMBC Nikko Securities

Strong US employment figures

LWellings — Mon, 12 May 2014 10:41:39 +0000

Strong US employment figures

US economy - resuming the growth seen before the bad weather

As we hoped, the US economy shows signs of resuming the growth we saw before bad weather in the early part of the year gave rise to fears that growth was slowing. The most recent unemployment release, for April, saw a sharp fall from 6.7% in March to 6.3%. At the same time 288,000 jobs were created, much better than the 218,000 expected by the market. Average hourly earnings grew by only 1.9%, suggesting that there is not yet a great deal of pressure in the labour market despite this fall in unemployment. As a pointer for the future however, the fall in the labour participation rate (the percentage of the population in employment or looking for work) indicates that some wage pressure may emerge further ahead. This good news is reinforced by rising optimism in manufacturing and service companies, measured by the ISM (Institute for Supply Management) survey, which has risen into the mid 50s, implying a robust improvement. This suggests to us that company revenues will grow, while the increase in the number of people in employment should support consumer spending. We remain optimistic that the consensus GDP growth figure in the US of 2.7% for 2014 can be exceeded. Business investment which grew by only 2.7% in 2013 is forecast to grow at 5.4% in 2014. If sentiment continues to improve, given the cash resources on corporate balance sheets, we believe this could prove to be conservative. We also expect a pick up in corporate mergers and acquisition (M&A) activity, which should also boost equity markets, following their lacklustre start to the year.

Living Standards in the UK Improving

admin — Thu, 17 Apr 2014 14:06:26 +0000

Living Standards in the UK Improving

The latest UK unemployment figures have broken below 7%, the level previously set by Mark Carney, The Governor of the Bank of England...

The latest UK unemployment figures have broken below 7%, the level previously set by Mark Carney, The Governor of the Bank of England, as the level at which the Monetary Policy Committee would consider raising interest rates. (Mr Carney has recently amended this stance with the Bank now looking at a wider range of economic factors before considering a rate rise.) This improvement in the employment market has been reinforced by average weekly earnings rising ahead of the rate of inflation, for the first time since late 2008. Despite poor current market sentiment, which is being influenced by slowing growth in China, tensions in the Ukraine and US first quarter economic performance, the UK has been basking in a swell of improving perception. The recovery in housing and services since last summer and more recently in manufacturing has been reflected in a sharp improvement in economic growth expectations with, for example, the International Monetary Fund suggesting that the UK would see the fastest growth, at 2.9%, in the G7 group of developed nations this year. Such optimism can, however, have a downside; one of these is the strengthening of sterling, which has breached $1.68. This may lead to rising uncompetitiveness for British exports. However, there is also some evidence that after a long period productivity is beginning to pick up. We share the optimism about the UK’s near term prospects and currently have an overweight stance to UK equities, although as with elsewhere we look for further validation that improved economic conditions are percolating into company profits.

Quarterly Investment Strategy

CAllen — Tue, 08 Apr 2014 10:23:54 +0000

Quarterly Investment Strategy

We believe that the global economy will continue to show sustainable growth, but that emerging markets will remain exposed to headwinds....

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European Rescue Plan Goes to Court

CAllen — Tue, 11 Feb 2014 16:48:30 +0000

European Rescue Plan Goes to Court

In the summer of 2012, Mario Draghi promised to do 'whatever it takes' to save the single European currency. Key to this was a plan for the European Central Bank (ECB) to buy the government bonds of countries willing to sign up to a programme of austerity.

This policy, known as Outright Monetary Transactions (OMT), has not yet been used, but its open-ended promise led to a rally in the government bonds of countries such as Italy and Spain. It has also set the tone for a recovery in the Eurozone. The legality of the policy, however, has always been questioned in Germany, where it is regarded as monetrary financing for governments and is considered to be outside the ECB's mandate. The major concern was that the German Constitutional Court would rule the policy illegal and prevent the Bundesbank from participating, which would seriously hamper the policy's effectiveness. Instead, the Court has delegated the decision to the European Court of Justice (ECJ), which hopes to arrive at a conclusion in the summer. There will be a number of factors for the ECJ to consider, the most important of which will be whether the ECB may purchase bonds in unlimited amounts and whether it will be considered senior to all other bond holders, meaning the ECB would be repaid first in the event of a default. Our view is that the OMT has been a tremendously successful policy and that in defining the decision to the ECJ, the German courts are acknowledging its importance whilst protecting their credibility. We believe that the ECJ will support the OMT policy, but probably with the caveat that the ECB must retain seniority over other bond holders and, therefore, reduce the risk of losing money. If the ECJ decides against the policy, it is likely that bond prices would fall again. The big question then would be whether the Eurozone has recovered sufficiently for OMT to no longer be needed. We believe Europe will continue to progress from here, and for now at least we maintain an overweight exposure to European equities.

Our View on Falls in Equity Markets

CAllen — Tue, 04 Feb 2014 15:23:30 +0000

Our View on Falls in Equity Markets

Most developed equity markets have had a nervous start to the year following a very strong 2013. We believe one of the primary reasons for this weakness has been a realisation that the reduction in the pace of US money printing (tapering) could have a significant negative impact on emerging markets, and what that could mean for the wider global economy. The recent fall in equity markets can also be attributed to a very sharp decline in the US manufacturers confidence survey. We agree with the first of these concerns and sold our emerging markets fund as a result. As for the relatively poor US manufacturers confidence survey, indications suggest that bad weather was a significant factor. Short-term events can often influence regular surveys such as this, and we are optimistic that it should rebound in the next few months to reflect longer-term factors, in particular the improving underlying US economy. As a result, we intend to remain overweight in developed market equities unless the economic outlook deteriorates further from here (which is not our central assumption). We believe developed economies will accelerate this year because interest rates will remain very low, banks are in much better shape than five years ago and government austerity is decreasing in the US and Europe. Japan, the world's third largest economy, should also support global growth in 2014. The central bank is printing significant amounts of money and there are now more jobs than applicants with unemployment at only 3.7%. This should lead to wage growth. Industrial production there is already growing at 7% year-on-year, house building is up by 18% and vehicle sales are up 27%. Inflation excluding food and energy costs is 0.7%, the highest since 1998. Despite these fundamental improvements, Japanese equities have fallen by around 10% this year as investors have taken profits on their 54% gains from last year. We would view this as a buying opportunity if we weren't already overweight. We do not believe that the slowdown in emerging markets will be significant enough to seriously damage Japanese exports, and we believe that fundamentally a stronger US economy and US tapering whilst the Bank of Japan continues to ease is negative for the yen, which helps Japanese exporters. Our recent thought piece explains why we remain positive on Japanese equities in more detail. Please note that the above information is believed to be correct but cannot be guaranteed. The opinions constitute our judgement at the time of writing and are subject to change. This is not intended as an offer or solicitation to buy or sell securities or other investment or banking products, nor does it constitute a personal recommendation.

Best performing major stock market 2013

CAllen — Mon, 30 Dec 2013 14:24:35 +0000

Best performing major stock market 2013

The best performing major stock market in 2013

Japan was the best performing major stock market in 2013. We discuss some of the key elements and what they mean for Japanese equities and for the economy in 2014.

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Understanding the 'home bias puzzle'

CAllen — Fri, 13 Dec 2013 15:57:56 +0000

Understanding the 'home bias puzzle'

In this article we discuss the history and current rationale of the 'home bias puzzle' and explore whether it may be more appropriate for some investors to invest without a bias.

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October Quarterly Investment Strategy

Author — Fri, 18 Oct 2013 10:16:29 +0000

October Quarterly Investment Strategy

C. Hoare & Co. Quarterly Investment Strategy

Economic improvement has been more widespread over the past quarter, with positive signs in most developed economies, including Europe....

Central banks have reiterated their intentions to maintain interest rates at low levels for the foreseeable future. Indeed, the US Federal Reserve surprised markets in September by announcing that they were not yet ready to taper asset purchases.... For our full Quarterly Investment Strategy click here

August Outlook for Bonds

Author — Fri, 18 Oct 2013 10:59:40 +0000

August Outlook for Bonds

Weighing up the prospects for bonds

The Federal Reserve recently announced that it is preparing to slow the flow of liquidity provided by its bond buying programme....

The Federal Reserve recently announced that it is preparing to slow the flow of liquidity provided by its bond buying programme. While the precise timing of the tapering is uncertain, the implications for the US economy and for bond markets are significant and should be considered in terms of investor portfolios.... Read the full report here