The large majority of news this week has revolved around the European Central Bank (ECB), which announced yesterday that it was to extend its quantitative easing programme. 
While this seems like good news for risk assets, equities around the world actually went the other way as investors had priced in even more central bank stimulus from Draghi and Co. Therefore, markets have had to experience a little bit of a readjustment.
Nevertheless, many still expect European equities to rally next year and FE Trustnet took a look at five funds which look set to benefit from the trend.
So that’s what has happened to markets, but it’s been a week of traveling for FE Trustnet. Editor Gary Jackson went on a State-side fact finding mission with Schroders while Daniel Lanyon was our roaming senior reporter in the mean streets of Henley-on-Thames with Invesco Perpetual.
On top of that, outlooks have been flying in thick and fast for the year ahead which, along with our access to FE Analytic’s shed-load of data, have kept us all busy. Here, we highlight five of our favourite stories of the week.
From everyone here on the editorial team, have a cracking weekend!
"If you thought it was bad, it’s actually worse": Brookes warns of bond correction in two years
We start off with editor Gary Jackson, who used his time in New York to find out the views of Marcus Brookes, co-manager of the Schroders MM Diversity range, on the bond market
The multi-manager has been bearish on the outlook for bonds for some time – as evidenced by a high cash weighting and the use of the very cautious JPM Income Opportunity Plus fund – but is currently concerned by the low levels of liquidity being seen in the fixed income market.
Primary dealer positions of corporates, municipals and commercial paper
Source: JP Morgan Asset Management, as at March 2015
As the chart above shows, the years since the global financial crisis have seen a massive increase in the size of the bond market but a massive fall in dealer inventories, or the stock of bonds owned by banks and other institutions to sell to buyers.
“The bond market has doubled since the crisis yet actually dealer inventories have dropped 85 per cent,” Brookes.
“That data is all outstanding debt but when you look at just investment grade dealer inventories that's now gone negative. Banks are now taking liquidity out of the market rather than adding to it. They are now customers and are holding onto bonds, rather than trading them.”
“If you thought it was bad, it's actually worse than you thought it was. It doesn’t matter at this moment in time because markets are OK, there's no shocks and no expectations of a recession, but this thing will come to roost at some point in the next two years. I just don't know exactly when.”
Alastair Mundy: Why we’re in “value hell”
Temple Bar Investment Trust manager Alastair Mundy explained on Thursday why he believes we remain in a value bear market that doesn’t look set to end any time soon.
Not only does the bottom-up stock-picker think that there are too few attractively-valued stocks in the market to get excited about, he also warns that things don’t look too bright from a macro perspective either.
In fact, he says that factors such as ultra-low interest rates and large amounts of government debt indicate the world is in the throes of a global financial crisis as opposed to a period of global economic recovery.
“I don’t think I’m saying anything particularly weird when I discuss my bear argument, but then I look at other people’s portfolios and they look nothing like mine. I think in general, everyone’s got their fingers crossed hoping that everything is going to be okay,” he said.
“Our industry always wants to be bullish, we always want to tell our clients that we’re either optimistically optimistic or cautiously optimistic, so we have got a bias. I just don’t see a huge amount to be optimistic about at the moment.”
Invesco Perpetual: Where to make and lose the most cash in 2016
Senior reporter Daniel Lanyon made the trip to the Henley HQ of Invesco Perpetual this week meeting a raft of the investment team’s top brass.
In this article, chief investment officer Nick Mustoe took FE Trustnet through the places he is expecting to see the best returns alongside where he saw the most risks.
Aside from his role as the group’s CIO, Mustoe manages a range of portfolios including the Invesco Perpetual Managed Growth and Invesco Perpetual Managed Income funds and has positioned both of these along the lines of his bullishness on certain areas of the market.
Also, UK Growth manager Martin Walker explained the bull case for investing in UK value stocks next year and Global Targeted Returns manager David Millar set out why his case for holding his rapidly growing fund alongside his erstwhile, and now rival fund.
The UK funds set for five consecutive years of outperformance
With 2015 drawing to an end, news editor Alex Paget took a look at the UK equity funds that are on track to deliver five consecutive years of outperformance relative to their peers in their respective Investment Association sectors.
To do that, we looked at the funds in the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors that beat their peers in 2011, 2012, 2013, 2014 and are outperforming once again in 2015.
Unsurprisingly, given that period includes a variety of market conditions, only 15 (out of a possible 409) funds are achieving that feat.
Eleven of those come from the IA UK All Companies space and they include a variety of mid-cap and ethical funds as well as multi cap portfolios such as CF Lindsell Train UK Equity and GVQ UK Focus.
Source: FE Analytics
There are then three from the small-cap sector but HL Multi Manager Income & Growth is the only IA UK Equity Income fund to have made it onto the list.
Why you can afford to hold both Woodford and Barnett in your portfolio
Reporter Lauren Mason posed the question earlier this week whether investors can afford to hold Mark Barnett’s Invesco Perpetual High Income fund and Neil Woodford’s CF Woodford Equity Income fund together?
Both men worked together closely during their time in Henley and therefore have very similar styles, so the consensual view is that investors need to choose one or the other to give them core exposure as there would be too much overlap between them if the two strategies were blended.
FE Alpha Manager Guy Bowles disagrees with that view, though, as he holds a combined 12 per cent of the two in his Ingenious Global Growth fund.
“It was pretty clear for us when we met with Mark Barnett that he was going to subtly change the way the fund had been run and would make it more of his own fund, in particular selling down and get rid of a lot of private equity and micro-cap holdings. Not that he thought it was terrible, he just wasn’t on top of it so sold it back to Neil,” Bowles continued.
“Neil obviously had a number of ideas that he wanted to put in his portfolio. We’ve had the two managers in recently and they’ve both got quite different views on two or three stocks.”
“From our point of view, we anticipated they would diverge in the way they managed and the way they performed and that has absolutely proven to be the case. That’s why we hold them both, we believe they genuinely are different vehicles.”
