The summit last week came up with a decision to use the eurozone’s bailout fund to provide direct support to struggling banks. Spain and Italy secured agreement to allow the bailout fund to buy government debt in the markets, to bring down the cost of borrowing. The new European Stability mechanism (ESM) will come into effect next month. Agreement was reached for a new EUR 120 billion growth pact, and to begin negotiations on closer economic and fiscal cooperation.

Economic growth remains disappointing in the UK and the US, and to counteract this it is likely there will be a further round of quantitative easing. In anticipation of this, equities and commodities have been going up recently. There could be quite a lot further for this to go.

Most people invest mainly in companies, not countries or governments, and so it is the health of the corporate sector that matters most. The second quarter earnings season will begin soon in the US, which will give us a better feel for the health of the US economy. Although the global slowdown potentially affects company results everywhere, there are still plenty of opportunities for growth. Even after the rebound in the stockmarket over the last week or so, the valuations of the shares of many companies are still very attractive, and dividends are the best source of income at the present time. The dividend yield of the shares of some international companies like Shell exceed the yield of their bonds, which is unusual.

As well as good value to be had in Europe, the equity markets of Japan, Asia and the emerging markets also look attractive.

A theme that is particularly interesting at the moment is technology. Companies like Apple, Google and Microsoft are very cash-generative, and yet they can be bought on relatively low PE ratios. The technology provided by companies like these is transforming the way we work and live.

Buying high quality global companies is a strategy that is working well in the current climate, as demonstrated by Ben Rogoff’s Polar Capital Technology Trust, Terry Smith’s Fundsmith, and Invesco Perpetual’s Global Equity Income fund.

There are still good opportunities in the fixed interest arena, with some corporate bond funds yielding 4-6%. The best absolute return funds are providing low volatility and reasonable returns. As always, it is important to have a well-diversified portfolio, with the main asset classes in the proportions required to meet your objectives and your attitude to investment risk.

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.