We can now look back on the first half of the year; a period that has seen a marked shift in investo...
We can now look back on the first half of the year; a period that has seen a marked shift in investors' attitudes from risk aversion to risk seeking. From the lows in March, this has resulted in gains of around 25% for most major equity markets.
The FTSE All-Share rose 26.81% between 12 March and 7 July and the S&P 500 went up 22.58% over the period.
After having suffered more than other markets over the past three years, the Eurostoxx 50 went up even further, seeing a rise of 31.34%.
There have also been good returns from fixed interest portfolios, with the average yield for a 10-year bond at 5.9% on 7 July.
This has confounded most pundits' conservative forecasts for the year and is presenting investors with a conundrum. Bond markets appear to be pricing for the prospect of almost deflationary conditions, while the equity markets are pricing an economic recovery.
In some part they are both right, but it is our view that government bonds have now topped out. As a result, we have sold our holdings in Treasuries.
It is apparent that while a lot of the good news is now priced into stocks, if and when there is more confirmatory evidence of a profits recovery the market may well move significantly higher.
It has digested better than expected earnings growth in the first quarter of the year, but it is now all about the further delivery of earnings which would underpin current valuation levels. Earnings announcements through late July and early August will provide clarity in this regard.
While we are expecting higher stock prices, it would be imprudent to herald the start of a new bull market in equities. Rather, it is our belief that this is a cyclical bull market in a secular bear market.
For further information on similar views, see the recent article in Barron's featuring Ned Davis entitled 'Bear's Pause', or Peter Oppenheimer's excellent Goldman Sachs research on the anatomy of bear markets.
Additionally, we would point to our comments at the start of the year, when we said: 'We are aware it could take longer than three years for the excesses built up in previous bull markets to wash through. We believe any rallies may seem ephemeral in what could be a prolonged sideways period for equity markets.'
The immediate future presents an environment in which markets will oscillate between positive and negative returns and sector rotation will be extreme.
A buy-and-hold strategy is unlikely to be rewarding in this environment, which will suit those managers who are able to move quickly, are not constrained by benchmark considerations and focus on the important price drivers.
Managers within our portfolios who possess these attributes include Stuart Sharp, Ashley Willing, Andrew Green and Hugh Hendry.
Supportive monetary and fiscal policy.
Positive earnings surprises.
Signs of increasing capital expenditure.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till