Contrasting facts and figures around the world pointed to a diverging tone between the real economy and financial markets this week, with the UK inflation measure ‘deflating’ by 0.1 per cent over the past year at the same time as all-time highs were reached in global equity markets.
Also this week, as China stocks continued to accelerate one of the top index constituents – solar energy business Hanergy – saw its share price lose almost half its value in just a day’s trading. Are Chinese equities in a bubble or not? The expert are split on that one.
In light of this, here is a selection of our favourite stories from this week to cheer up our readers, although that might not be enough for anyone heavily invested in that stricken Chinese solar power firm. Have a great weekend!
Neil Woodford: How to make money like me
First up, reporter Daniel Lanyon heard from star manager Neil Woodford about how he goes about his investment process.
For someone who is well-known as a stock picker, Woodford candidly explained how important having a grasp on the macro environment is when building a portfolio.
“I spend a lot of my time thinking about what is going on in the world economy as, of course, everyone knows that all businesses are to some extent effected by the macro environment and what is happening around them, whether it’s deflation, interest rates, tax, trade or social and political things that feed into the macro picture,” Woodford said.
“All of these things are important in helping me form a view about what is going to happen in the medium and long term. Trying to evaluate a business without having a macro view is in my mind like music without instruments – it just doesn't work.”
“If you focus on the medium and long term then you can make a better, more informed judgement about the macro environment. Of course that is only part of the picture. When you make investments you have to marry that macro perspective with your stock analysis and your valuation.”
Woodford also slammed other managers who claim to be only interested in the ‘bottom up’.
“Trying to form a view about valuation and where cash flow is going to be in the future without looking at the macro economy seems to me to be deliberately only looking at half the picture.”
The sectors where holding tracker funds is paying off in 2015
Gary Jackson, news editor at FE Trustnet, delved into the data in a study looking at how tracker funds in several sectors were trouncing their active rivals in 2015.
After crunching the numbers, Jackson found out that trackers were doing particularly well in the IA Global and IA Emerging Markets sectors.
Performance of passives vs sector and index over 2015
Source: FE Analytics
Highly rated European funds for the strong-stomached investor
Reporter Lauren Mason meanwhile looked at European funds that are top performing but also some of the more volatile ways to access the European equity market.
She gathered the five best performing funds in the IA Europe ex UK sector in terms of alpha – value added above a benchmark – as well as those with the highest rates of volatility.
Scottish Widows HIFML European Strategic and GLG Continental Europe were amongst those thrown up by our data but to find out the others you’ll have to check out Mason’s story.
Three alternatives to Newton Asian Income
The news that the longstanding manager of Newton Asian Income fund, Jason Pidcock, is set to depart Newton after almost a decade prompted senior reporter Alex Paget to look at some possible alternative funds for those pondering moving their cash.
Pidcock has built up a decent track record over the past 10 years at Newton and in his new role will move to Jupiter to develop a new strategy along the same lines as his old fund.
However, until this is more clearly defined or for those who believe the manager’s recent underperformance could be more than just temporary, Paget took a look under the bonnet of three rivals.
Matthews Asia: Why pessimism on China is outdated
Over on Trustnet Direct, Andy Rothman, investment strategist at Matthews Asia, explained why he believes that much of the pessimism surrounding China is based on information that is outdated.
“It is really, really easy to get outdated really quickly in China because things are changing so fast,” he said.
“For example, when I first started working in China 30 years ago, there were no privately owned companies and today 80 per cent of job creation in China is small private companies.”
He also disputed the description of the current rally as a “bubble”, pointing out that the market is simply playing catch-up and that it is built on China’s enormous household savings rather than debt.
“If you look at household bank accounts – so just households, not businesses – it’s the renimbi equivalent of $8trn,” he said.
“To put that in context, it is bigger than the combined GDP of Russia, Brazil and India – so when people ask how the Chinese can afford to buy a car or a house or where the liquidity is coming from for the Asia rally, it’s not that they can only afford one of these things."