A falling currency and continued momentum in equities globally saw sterling-based investors reap considerable rewards in the first quarter of 2013.

Regional market performance was not uniform. In particular, the developed stockmarkets of the USA, UK and Japan did well, while the emerging market “BRICs” actually fell during the period.  Mixed data from China, India and Brazil, combined with weak commodity markets and a strong US dollar. China’s first quarter GDP growth was slightly less than expected at 7.7%, which has resulted in a sell-off of commodities.

On 4 April the new governor of the Bank of Japan stunned markets by committing to double the bank’s asset purchase plan to $75bn per month and double the Bank of Japan’s balance sheet to 60% of nominal GDP by the end of 2014. The yen has fallen nearly 30% in only six months, and the Japanese stockmarket (Nikkei 225) is up over 50%.

Investors are being priced out of fixed income markets around the globe.  Many are talking about the possibility of a ‘Great Rotation’ out of bonds and into real assets such as equities and property.  There is no certainty of when this will happen, however.

We are positive on UK equities principally because of the international earnings potential in a sterling environment and the running dividend yield.  We are also positive on the prospects for large global businesses that can benefit from the current economic climate.

As always, it is important to have a balanced portfolio, invested in all the major asset classes, in line with your objectives and attitude to investment risk.  Any changes in asset allocation should be gradual, because of the difficulty with precisely timing the markets.

Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.