All those predictions of increased market volatility were certainly looking to be on the money this week, especially yesterday when the FTSE was yo-yoing around after the Swiss National Bank hit investors with a surprise change in policy.
The central bank scrapped its currency peg with the euro - a measure implemented three years ago at the height of eurozone debt crisis to stop the Swiss franc soaring in safe haven trades - in a shock move yesterday, causing Swiss equities to tumble and the franc shoot up 30 per cent against the euro.
This meant Thursday was quite the day for equities. The FTSE 100, for example, opened at 6,388.83 then jumped 1.3 per cent in the first 15 minutes of trading to 6,471.83 before tumbling to 6,298.55 before 10:00. It eventually ended the session 1.35 per cent higher than its open at 6,474.82.
Investors are still digested the moves and what they ultimately mean for markets. Meanwhile surprise interest rate cuts were also seen in India, Egypt and Peru this week, highlighting that central bank policy will continue to drive market sentiment for some time to come.
But that’s not all that happened last week so we’ve summarised our favourite stories below. We hope you all have a great weekend.
The major risk facing cautious investors in 2015
The recent volatility and a somewhat downbeat outlook for the coming months may have caused some investors to adopt a more cautious stance but Margetts’ Toby Ricketts warned us this week that some cautious portfolios could be at risk if they think gilts offer protection at their current years.
With 10-year gilts now yielding just 1.6 per cent – having started last year at close to 3 per cent – Ricketts questions why managers keep buying them as it’s unlikely they will fulfill their traditional role as hedging against equity risk and have a very limited capital return over the longer term.
“You’ve got to wonder, are they buying them to make money or as a form of insurance?” Ricketts said.
“If it’s for insurance, the danger will come. The reason why a lot of managers see them as a form of insurance is because bonds have typically been negatively correlated to equity markets. However, in the taper tantrum in 2013 both equities and gilts dropped at the same time.”
Bill Eigen: Most bond funds guaranteed to lose money in this “broken” market
The warnings about bonds continued after JP Morgan Asset Management’s Bill Eigen said a lot of “very, very strange things” were going on in the bond market in 2014, causing sovereign bond yields to trend downwards in developed market regardless of how healthy or not the underlying economies looked.
Performance of indices in 2014
Source: FE Analytics
The manager thinks the bond market has becoming increasingly distorted and is worried that not enough investors are prepared for the fallout that will come when the US Federal Reserve lifts interest rates later this year.
“The scary thing when you look at that is: where is all the money in fixed income going right now? It’s going into traditional fixed income funds that are making that bet all the time that the rate is going to go even lower [and] closer to zero,” Eigen explained.
“I don’t know why people are praying that globally rates go to zero because once they go to zero do you know what the opportunity set in traditional fixed income is? Zero. You’re guaranteed to lose money.”
The funds and trusts Tim Cockerill holds in his pension
This week FE Trustnet also got under the bonnet of Tim Cockerill’s pension, finding out how the Rowan Dartington investment director uses a core-satellite approach to investing, complementing no-nonsense funds with more adventurous holdings.
“At the top of the list is Invesco Perpetual Global Targeted Returns,” Cockerill told us. “The results have been very good. I like the idea of having a multi-asset fund like this as my largest holding – especially when the outlook globally is as uncertain as it is today.”
The top five holdings of Cockerill’s pension is shown below but to see the whole portfolio, give the full article another read.
Source: FE Analytics
The UK’s most consistent funds over five years
Here at FE Trustnet, we’re big believers in consistency so in this article we looked for the most consistent outperformers among UK funds over the past five years.
The research found that only six funds out of a possible 374 from the IA UK All Companies, UK Smaller Companies and UK Equity Income sectors have beaten their benchmarks and average peer in each of the last five full calendar years.
In IA UK All Companies, which is the IA universe’s largest peer group, CF Lindsell Train UK Equity and Aviva UK Equity Manager of Manager were the only two to achieve the feat - with the table below showing how.
Source: FE Analytics
There was only one fund from the IA UK Smaller Companies sector to outperform in each of the past five calendar years and three from the IA UK Equity Income peer group. Please take a look at the full article to see which portfolios they are.