Investment Newsletter - July 2013

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Investment Newsletter July 2013

Mysterious Markets Markets continue to move in mysterious ways! We wrote last month about the bout of volatility we were seeing, brought on by rumours of the withdrawal of monetary stimulus (quantitative easing). This volatility has continued since our last newsletter, although happily we have seen more ups than downs since then! In the last edition we explained that the FTSE 100 had hit 6,840 on 22 May, but then dropped back to 6,336 on 6 June. Unfortunately, after our newsletter was issued the market kept on falling, getting as low as 6,029 on 24 June. We are pleased to report that the FTSE has since recovered much of its losses and as I write (18 July) it stands at just under 6,600. This means it is still above the level it was at the beginning of May, even if it not quite back to its peak. The US market has beaten its previous levels with both the Dow and the S&P 500 now trading at record highs. As always, we aim to buy low and sell high – these are investing basics but in reality quite hard to do! We therefore topped up equities for most clients as markets fell by buying a FTSE Allshare index tracker. We were not able to time the bottom of the market accurately but for most model portfolios we purchased at a market level of around 6,240. Given the recovery since then this investment is typically up around 6% and we may well sell this again should markets rise much further.

Getting QEasy I am starting to get somewhat tired of writing about central banks! Investing in the long term should be about fundamentals. How well are companies doing, are their earnings increasing which should mean an increase in share price or dividend pay-outs? How secure is the company from whom we’ve bought a corporate bond, what interest rate will they pay us and will they be able to repay our loan? How secure is the tenant in a commercial property, will they continue to pay their rent and how attractive is the rental yield? These are the main drivers of returns in equity, fixed interest, and property respectively. Yes, the economy affects all of these and one of the jobs of the central banks is the ensure stability of the economy. However, trying to second guess how much stimulus or otherwise they are going to add in the short term is nigh on impossible. Investors need to stop trying and remember what’s important. Based on fundamentals, we still think equities should provide decent returns for some time, short term volatility aside. Equally, as we showed last month, we are becoming more interested in property funds as the economy improves. We are less positive about fixed interest and have reduced exposure while altering the type of fund we hold. Although we think our fixed interest funds should still provide a reasonable return in the short term, we may well reduce exposure again in the near future. If we do so, we then need to decide where should we invest instead? Equilibrium Asset Management LLP (a limited liability partnership) is authorised and regulated by the Financial Conduct Authority. Equilibrium Asset Management is entered on the Financial Services Register under reference 452261. The FCA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission


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