Skip to the content

Gleeson: Four events fund investors can’t ignore in Q1

05 January 2015

FE Research’s Rob Gleeson highlights four events he says investors should look out for in the first three months of 2015, while top advisers reveal which funds they would recommend to deal with the fallout.

By Daniel Lanyon,

Reporter, FE Trustnet

Investors and fund managers may have been surprised in 2014 to the extent that political risk was ramped up over the course of the year. Because of Ukraine, Russia, the Middle East and Scotland there were plenty of reasons for portfolios to be knocked or boosted by political activities.

For investors, politics will also loom this year with the UK general election on May 7 but as several experts such as BlackRock’s Nigel Bolton and Equilibrium’s Mike Deverell have warned central bank risk will feature as higher concern.

Here, FE Research head Rob Gleeson reveals the key dates that will govern returns in the first quarter of the year ahead of the election – and all but one involve central bankers. We also hear from several experts as to which funds they are using to navigate the events Gleeson highlights.
 

Bank of England’s Monetary Policy Committee on interest rates

While expectations of a rise from historically low interest rates has been largely pushed back to the end of the year, first up Gleeson highlights the UK central bank’s early meetings of the year, due on 8 January, 5 February and 5 March.   
He says a rise in interest rates seems unlikely within the next quarter but the Monetary Policy Committee has appeared to abnormally change direction between a hawkish and a dovish tone over the past 12 months.   

“The reforms outlined for the second half of 2015 to increase the transparency of these committees will hopefully mean fevered speculation on what the Bank is going to do will eventually become a thing of the past,” he added.

Gordon Smith, analyst at Killik & Co, favours the £4.2bn CF Woodford Equity Income fund over both the short and long term as he says its bias towards defensive stocks and absence of cyclical exposure should hold up to central bank risk with its smaller, growthier bucket of holdings also adding some capital appreciation.

“We like the core defensiveness part of it whilst attached to that is a growthy, small company biotech side that adds something different,” he said.

“With monetary policy risk you get potential for volatility in markets and this sort of fund tends to deal better with these sorts of periods of change quite well.”

The fund, launched in June 2014, has had a good run, up 6.65 per cent while the average IA UK Equity Income fund is down 0.22 per cent and the FTSE All Share shed 2.22 per cent.

Performance of fund, sector and index since June 14

 

Source: FE Analytics 

It has a clean ongoing charges figure (OCF) of 0.75 per cent.
 


ECB Governing Council meeting on interest rates

Gleeson notes that the next announcements of the European Central Bank’s (ECB’s) main decision-making body are due on 7 January, 4 February and 5 March.

“While any change in interest rates seem unlikely, investors and commentators alike will be looking to see if the ECB begins a phase of quantitative easing to boost the stagnating eurozone,” Gleeson said.

Chris Wise, investment director at Gemmell Financial Services, is closely scrutinising an investment in European equities ahead of a potential QE programme.

However, with uncertainty as to how the market will react, he is planning to scoop up a low-cost tracker initially, choosing the £45m Fidelity Index Europe ex UK fund.

“I’m playing with the idea of starting with a passive fund. It should give good exposure to the broader European region - covering 14 countries, mostly large and mid-caps – and at 0.1 per cent it is extremely low cost,” he said.
 

US debt ceiling

The US law that allows for no-limit spending by government – the Temporary Debt Limit Extension Act – expires on 15 March.

Gleeson says while the new Congress begins in January, supposedly providing sufficient time to resolve the issue within the legislative branch of the government, the Republican Party boosted by its recent electoral success may use the issue to try to force through spending cuts or reductions to the federal government budget. 

“Worst case scenario is another government shutdown, but surely neither side will want to risk alienating the electorate again?” Gleeson says.
 

Fed meetings

Also in the US, Gleeson highlights the next Federal Reserve meetings – scheduled for 29-30 January and 19-20 March – as another key series of events for investors with US exposure to scope out.

“With the US expected to be the first of the developed nations to raise interest rates any increase will soon lead to speculation as to when the UK and others will follow suit,” Gleeson said.

Neil Shillito, director of SG Wealth Management, favours the £2.8bn JP Morgan US Equity Income fund, managed by Clare Hart and Jonathan Simon, for more difficult market conditions.

“I would class this fund as being useful in periods of market stress due to its defensive qualities,” Shillito said.

“The market knows full well that this [the debt ceiling and rate rise] is looming so it is the elephant in the room and there will be a lot of hype leading up to it.”

“However, short of pulling completely out of the market and sitting on cash, I don’t see any way of entirely protecting client’s interests in what is ultimately a political decision.”


Over the past six years the fund has failed to stay ahead of the S&P 500 but it has outperformed the average fund in the IA North American sector and has beaten both in terms of volatility, scoring the third best in the sector.

Performance of fund, sector and index over 6yrs



Source: FE Analytics 

The fund has a clean OCF of 0.93 per cent.


ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.