Politics has once again dominated the headlines this week as the upcoming election and the inevitable uncertainty that will come with it have caused gilt yields to rise.
Although bonds have had a tough week, UK equities have continued to perform well. The FTSE 100 has gradually trended higher and is currently trading around the 7,070 level – though whether it will maintain this momentum remains to be seen.
Outside of the macro events, FE launched its unique ratings for tracker funds and ETFs which are designed to give investors better insight into the quality of indexed funds in the market. In other news, someone has been arrested for supposedly contributing to the 2010 Wall Street “flash crash” from his parents’ home in Hounslow.
All told, it means we have been kept busy and so here we highlight our favourite articles of the week.
From all of the team at FE Trustnet, have a great weekend.
FE’s highest rated passive funds
We start off with the launch of the FE Passive Fund Ratings.
The ratings system, which judges passives principally on tracking difference and tracking error, reviews more than 250 ETFs and passive funds to allow investors to objectively compare conventional trackers and exchange traded funds (ETFs) with each other.
This article highlighted the ETFs and tracker funds that carry the highest rating: groups that came out on top included iShares, Vanguard and Lyxor.
Source: FE Research
We dedicated a whole day to passives as a result of the launch. Other articles included how the ratings were calculated, how to create a purely passive portfolio and the giant trackers and ETFs that have fallen well short of the benchmark they aim to mirror.
The five biggest trust launches of all time (apart from Woodford’s): Where are they now?
Another major talking point this week was Neil Woodford’s new closed-ended fund, the Patient Capital Trust, which floated with a full allocation of £800m.
Given the hype surrounding the launch and the sheer amount of money raised, reporter Daniel Lanyon – with the help of closed-ended fund experts – took a close look at the fortunes of the five previous largest investment trust IPOs.
They included Fidelity China Special Situations, Britannic UK Income and Kleinwort European Privatisation. Some of them are still around today, but others have since closed despite their popularity at launch.
Ruffer: We’re more bullish on Japanese equities than ever
Next up was an exclusive interview with Ruffer’s Steve Russell, conducted by head of FE Trustnet content Joshua Ausden.
The FE Alpha Manager and his team have been bullish on Japan for a number of years now but told Ausden that the rallying market is even cheaper than it was two-and-a-half years ago and that there is between 30 and 50 per cent upside left in Japanese equities over the next three years.
Performance of indices in 2015
Source: FE Analytics
The market has already got off to a flying start in 2015, but Russell expects more to come.
“We are seeing a combination of a long-term cyclical upswing which has been happening since just before Shinzo Abe came into power. Then we’ve had the government stimulus through QE, extra QE and tax cuts. We finally have a government that is standing behind the desire to get asset prices and inflation – particularly wage inflation – rising.”
“The final element we’ve had which we have certainly not seen in other regions such as the eurozone is a dedication to improving corporate governance. The authorities are really pushing for a higher return on equity from corporations.”
“Over a three year view I would say there is between 30 and 50 per cent upside to come.”
The equity funds that have lost you the least money over 10 years
In this study-based article by reporter Lauren Mason, she looked at every pure equity fund in the Investment Association to see which ones have delivered the lowest maximum drawdown – which measures the most an investor would have lost if they had bought and sold at the worst possible moments – over the past decade.
Funds that featured high up on the list included specialist products such as Schroder Global Healthcare, North American funds such as Legg Mason ClearBridge US Appreciation and steady growers such as Morgan Stanley Global Brands and Trojan Income.
The funds that had the highest maximum drawdown included Legg Mason Japanese Equity and portfolios focused on high-risk areas of the market such as financials, gold, eastern Europe and mining.
Metcalfe: This “scary” market rally will end in tears
In this very bearish article, iBoss’s investment director Chris Metcalfe warned that investors should be concerned about the stellar performance of risk assets so far this year and said that both equities and bonds are due a large correction in the not-so-distant future.
“[Equity] returns so far in 2015 have been scary. The economic data hasn’t been particularly good, but the stock market has absolutely torn it up,” Metcalfe said.
“The market keeps going up without any apparent justification, but long-only managers always come up with expressions such as finding pockets of value – that concerns us because when there are only pockets left, it means the rest of the value has gone.
“Nevertheless, equity markets keep going up, but while the economy and corporate earnings aren’t improving, P/E ratios will become more and more stretched.”
Source: FE Analytics
Metcalfe is even more concerned about fixed income, which he says is in “completely unchartered territory” thanks to years of ultra-low interest rates and massive amounts of QE from the world’s central banks.
Trusts with a high and rising dividend yield: UK Equity Income
Data released by the AIC on Tuesday showed that the average investment trust in the IT UK Equity Income sector has delivered annualised dividend growth of 4.82 per cent over the past 20 years.
However while this is an impressive figure, it does not automatically translate into a high headline yield: for example, Alliance Trust is one of three trusts that holds the record for the number of years of consecutive dividend increases, at 48 – but it is yielding just 2 per cent.
Trustnet Direct decided to look at the trusts in the IT UK Equity Income sector that have demonstrated at least 10 years of dividend growth in a row and that have a higher yield than their sector average.
Three trusts that fitted the bill were Merchants Trust, Murray Income IT and City of London Investment Trust.
The site will apply the same criteria to other sectors in the coming weeks.