View more on these topics

Rob Burdett: My three big calls

Rob-Burdett

It would seem some volatility is returning to risk assets as geopolitical concerns continue to dampen sentiment and improving economic data leads investors to fear interest rate rises. The summer months can often be difficult for risk assets; volumes tend to be low and market moves can be exacerbated. We should remember rising rates thanks to an improving economy are no bad thing, particularly if inflation remains benign. In this environment, equities can still make reasonable progress. 

The risk-reward from fixed income, however, looks much less attractive and fund flows data already suggests money is starting to flow out of some fixed income assets, particularly high-yield bonds. If this stream becomes a flood, market liquidity issues could become a problem once again.

Fixed income markets have grown massively on a wave of quantitative easing money since 2009 but, thanks to investment banks pulling back from fixed income trading, the market has little depth and is extremely opaque. This is fine in a rising market as companies have issued plenty of cheap debt to income hungry investors. However, if there is a rush for the exit, liquidity could dry up very quickly. This is something at the front of the mind of every bond manager we speak to.

We are concerned over a further escalation in the two current main geopolitical risks – Ukraine and Israel/Gaza. Although this is often the case, it is the unknown or unexpected event which will cause the market to sell off. What is positive is we are in the midst of what seems to be a good corporate earnings season and the economic data remains generally supportive. The market levels certainly already express this positive view and therefore we are not looking to add to risk assets at this point. 

We now know US quantitative easing will end in October. The end of QE has tended to be associated with a pick-up in volatility and while we will have to see if history will repeat itself this year, we expect the US economic data to continue to pick up, which may offset the end of QE to an extent. For some other parts of the globe, the era of central bank support and loose monetary policy is a long way from ending, with QE still taking place in Japan, and the European Central Bank may yet be pushed to take further action.

Overall, our economic outlook remains broadly positive. The US is growing, China appears to be benefiting from mini-stimulus which is now feeding through into stronger growth, the UK is doing very well and Asia should benefit from a pick-up in China. Japanese data of late has disappointed but we still expect progress. 

Europe, however, remains an issue from an economic point of view and still has not reached “escape velocity”, that is, growth on a sustainable positive path. While the economic picture overall is reasonably good, the outlook for markets remains less clear. We have not seen a 10 per cent correction in the US since August 2011 and with heightened fears over rate rises and the end of QE coming ever closer, the coming months will most likely see further volatility across equities and fixed income as investors.

Rob Burdett is co-head of multi-manager at F&C Investments

Recommended

Business-General-Handshake-Hire-Appointment-700x450.jpg

SimplyBiz hires Aviva workplace benefits manager

SimplyBiz has hired Aviva workplace benefits manager Tom Nall as director of workplace solutions. The workplace benefits director position is newly created within the business. Nall joins after spending 13 years at Aviva. Adviser support services firm SimplyBiz launched its auto-enrolment package Simply Enrol in January. It incorporates payroll software from Staffcare, acquired by the firm […]

The-Co-operative-Cooperative-Bank-Branch-700x450.jpg

Co-op Bank slashes losses to £76m

The Co-operative Bank has reported a pre-tax loss of £75.8m for the first half of 2014, down from £845m a year ago. The bank has set aside an additional £5m for payment protection insurance redress, and an additional net value of £4.6m for mortgage-related conduct risk. Its total conduct and legal risk charge for the […]

Business-Handshake-Finance-Deal-700.jpg

US private equity firms close in on Kensington deal

Two US private equity firms are close to agreeing a deal to buy Investec’s UK intermediary mortgage arm Kensington Mortgages. Sky News reports Blackstone and TPG could complete a deal as early as this week for the specialist lender, which was acquired by Investec for £283m in May 2007. The size of the deal is not yet […]

UK-Currency-Money-Pound-GBP-620x430.jpg

Consumer Panel investigates fund management costs

The FCA’s Consumer Panel is carrying out an investigation into the transparency of fund management costs. The panel plans to complete the review by the end of August and publish it in October. It will examine investment costs and charges, looking at how transparent they are to consumers, with a primary focus on fund managers. […]

Rayner Spencer Mills: Why we rate the Artemis Global Growth Fund

Ken Rayner and Graham O’Neill from RSM explain why they rate the fund, its investment process and how it can be used in a portfolio. The Artemis Global Growth Fund became a RSM ‘rated’ fund earlier this year. In this video, Ken Rayner and Graham O’Neill explain the fund’s investment approach, why they rate it, […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment