Week ending 7th June 2019.

World Markets at a Glance

The last two weeks’ equity market moves show perfectly that markets rarely move in a straight line and it is best not to make knee-jerk decisions.

Following last week’s weakness (due to Donald Trump’s Mexico tariffs – please see here), it was the Fed that took centre stage this week as the prospect of an interest rate cut helped global equity markets recover lost ground.

James Bullard, the St Louis Fed President, was the initial bullish driver with his statement that US interest rate cuts may “soon” be needed to boost inflation and counter the slowing economic growth caused by escalating trade tensions.  Then the Fed vice chair, Richard Clarida, stated that if policymakers sense growth is slowing, they will act appropriately!

We have been saying for some time that the US needs lower interest rates (inflation continues to undershoot the Fed’s 2% target while economic growth has been mediocre) and these comments suggest the Fed is now open to an interest rate cut – and an interest rate cut would be a powerful impetus for this week’s rally to continue.

The big decision now is will the Fed move as soon as their next meeting on 18-19 June 2019 or will they prepare the ground in that meeting for a cut at their July meeting (that way they can try to save face and not look like they are panicking)?

However, adding to the urgency for an interest rate cut was today’s (Friday 7 June 2019) US employment data.  Payrolls increased by just 75,000 (consensus estimates were for a gain of 175,000), while last month’s gain was revised down to 224,000 from 263,000 and average hourly earnings growth slowed to 3.1% from 3.2%.

Likewise, there is a case for a dovish tilt in Europe after Tuesday’s (4 June 2019) Eurozone CPI inflation slowed.  Headline CPI inflation dropped to 1.2% from 1.7% and the core rate (which excludes volatile items such as food and energy) fell to 0.8% from 1.3%.

However, yesterday’s (Thursday 6 June 2019) ECB monetary policy meeting wasn’t as dovish as we were hoping as policymakers didn’t cut interest rates or add stimulus; although Mario Draghi, the ECB President, was adamant the ECB would not shy away from action to support the Eurozone economy and admitted several policymakers raised the possibility of an interest rate cut or restarting QE.

Looking ahead to next week, in the UK we have employment data (unemployment rate and weekly earnings); US CPI and retail sales; and Chinese retail sales and trade data.  Additionally we have the G20 Finance Ministers and Central Bank Governors Meeting in Japan, which may shed more light in the impact of the current trade tensions and tariffs.

Woodford Equity Income Fund

You may have seen in the news this week that one of the UK’s best known Fund Managers, Neil Woodford, has told investors that they can’t sell their holdings in his Woodford Equity Income Fund for the time being.

Whilst we appreciate that this high-profile fund suspension may be unsettling, it is important to stress that we don’t hold this fund in any of our client portfolios.  We would also like to highlight the differences between the investment process used by Neil Woodford and my wealth.

Due to the Woodford Equity Income Fund falling by approximately 25% since the EU Referendum (while the FTSE has risen by nearly 15%), there has been an increase in the number of investors wanting to exit the Woodford Equity Income Fund (i.e. redeeming their units) which has put pressure on the fund’s cash resources.

Most unit trusts and OEICs operate with sufficient cash resources to meet any daily client redemptions – and if this cash starts to run low, the Fund Manager would normally simply start selling some of the fund’s holdings to raise cash.  However, many of Neil Woodford’s holdings were illiquid as they were in unquoted companies or small quoted companies which he found he couldn’t sell at short notice.

At my wealth we believe that risk management is just as important as investment performance and returns.  We provide clients with exposure to the UK by only investing in large blue-chip companies that are constituents of the FTSE-100 (which accounts for over 80% of the total UK equity market).  As such, these holdings would be very easy to liquidate at short notice.

Exposure to other geographies (such as US, Europe, Japan, Asia and Emerging Markets), is obtained through a large and diverse range of funds (unit trusts, OEICs and ETFs), which are selected and consistently monitored via face-to-face meetings with leading fund managers and analysts from around the world.

Furthermore, our Investment Team have extensive access to these funds which allows us to look at how each fund is positioned in terms of their actual and relative compositions, which allows us to analyse the best way to blend these funds together.  This ensures that our client portfolios are fully diversified as it is pointless diversifying clients’ money by investing in a selection of different funds, if all those funds are all positioned in exactly the same underlying stocks and sectors.

Additionally, we have an active, discretionary managed approach to managing client portfolios, i.e. one where our qualified Investment Managers can react and adapt a clients’ portfolio to the changing market conditions by making instant portfolio changes.

Investment Management Team