Investment Newsletter April 2014
The Great Rotation Rotation By Mike Deverell Investment Manager
One of the big themes from 2013 was the so-called “great rotation”. This was supposed to be where investors finally gained confidence in the economic recovery in the West, switching out of “safe haven” government bonds like gilts and buying into equities.
This was exacerbated by the withdrawal of quantitative easing in both the UK and the US, both so called “emergency measures” to support our ailing economies. In 2013 the MSCI World index of established markets was up 24.3%, whilst the MSCI Emerging Markets index was down -4.5%, a quite startling differential.
This did seem to happen to some extent as the FTSE Allshare rose by 20.8% during 2013, whilst gilts fell by 3.9%. A similar pattern was seen throughout the world.
Looking at returns over the early part of 2014 however, we now start to ask the question whether the great rotation has rotated once more?
Another “rotation” also occurred with investors moving money out of emerging markets and back into more established markets. As the West finally began to recover from the financial crisis - nearly five years on investors removed money from the higher growth but riskier emerging economies and put their money back in Western markets.
Year to date, the gilt index is up 3.2% whilst the FTSE Allshare is down 0.1% and MSCI World down 1.1% (at 10 April). However, emerging markets have recovered somewhat after a shaky start and the MSCI Emerging Markets index is up around 1.1%. In fact the emerging market index is up 8.2% since 14 March after starting the year in negative territory.
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