Investment View - April 2013

Overview

Investors in assets of all types will have been well satisfied with the returns they achieved on their investments during Q1. Indeed, all the developed equity markets showed strongly although a few emerging markets did post negative returns. The corporate and high yield bond markets were relatively flat and whilst we did see a slight sell-off in the Government bond markets, this was reversed when news of the Cyprus bailout conditions were announced prompting a "flight to safety".

By and large, commodities tracked sideways, as did most of the commercial property markets, which, once again, saw prime locations outperforming their more secondary counterparts.

The economic news has shown the US continuing to recover, albeit at a rather lacklustre pace, whilst the corner appears to have been turned in China. Europe is a definite laggard, where it became clear that the Euro's problems are far from being fully resolved and, despite George Osborne's protestations to the contrary, the UK economy is not responding well to the austerity diet it is being fed. Indeed, a so-called "triple-dip" recession remains a real possibility!

With the markets having returned close to double-digits in 2013 already, our thinking is that this probably represents the best of the returns for the year. Whilst we do not believe that the markets are overly expensive, a significant correction will probably materialise sometime during the second or third quarters, making for a better entry point for anyone with money that is currently on the side-lines. Equities remain our preferred asset class although the time when it might be appropriate to add some property to the investment mix is approaching. On bonds, we are relatively neutral, preferring corporate and high yield to Governments but do not expect the returns to amount to anything more than their running yields. Overall, we are positive on the outlook as the extremely loose monetary conditions continue to favour investment in real assets and these policies do not appear to be changing anytime soon.

United Kingdom

The FTSE 100 Index is up 8.7% so far this year, with the small and mid-cap indices up even more.

George Osborne's budget contained no surprises. Whilst a triple-dip recession looks to have been avoided, the key challenges of stimulating the economy, whilst at the same time reducing the deficit, remain. Of course, the situation is exacerbated by the weak demand seen within one of the UK's major trading...