Investment Comment August 2013
9th August 2013
We have entered the quiet period of summer when the markets often lack direction. We expect that once this period is over, the stockmarkets of the UK and US are poised to head higher. The mid-cap Top UK 250 Companies index continues to do substantially better than the Top UK 100 Companies in the UK, and the Nasdaq100 index that includes technology stock continues to outperform, hitting a new peak on 31 July.
The recent UK manufacturing and industrial output numbers are better than forecast, providing more evidence that the economic recovery is strengthening. There are signs that growth is also returning to businesses in the Eurozone.
The US stockmarket, as measured by the S&P500, is up nearly 20% this year, touching a record high at the beginning of August. The major central banks remain accommodative, with interest rates on hold and no new guidance from the Bank of England or the European Central Bank.
Overall, we continue to believe that the bull market in equities has further to go, and we think commercial property is beginning to benefit from the recovery. The fear of rising interest rates has receded somewhat, but we remain cautious about fixed interest investments. The yield on 10 year gilts is now 2.5%, which compares with a year low of 1.4%. These rates are still low bearing in mind that UK inflation is running at 2.9% (CPI June 2013).
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.