UK: mid-year review and outlook

By Mark Martin, manager of the Neptune UK Mid Cap Fund, and Scott MacLennan, manager of the Neptune UK Opportunities Fund

H1 2014
• Equity markets continued to show strength: despite a strong rally in 2013 driven by a market-wide re-rating, equity markets continued to generate positive returns for investors. Economic activity continued to be stimulated by accommodative policy from both central banks and political bodies. This has aided the progressive repair of economies affected by the financial crisis and supported the improving outlook for global growth. In addition, despite no longer appearing cheap in absolute terms, equities remained attractive relative to other asset classes.

• Selling the winners, buying the laggards: there was a noticeable internal shift within the UK equity market that saw investors move away from the ‘winners’ of 2013 into sectors and stocks that underperformed in the same period. Areas of the market that performed strongly last year on the back of a buoyant outlook for the UK economy, namely the housebuilders, building merchants and retailers, started to come under pressure in the first half of the year as the market brought forward expectations of a rise in UK interest rates. Consequently, the market focused its attention less on domestic cyclical exposure found within the FTSE 250, in favour of more diversified, overseas earnings sources within the FTSE 100.

• Early- to mid-cycle rotation: momentum in domestic cyclicals slowed as UK interest rates looked set to rise and investors reduced their sector allocation away from early-cycle exposure, mostly found through industrials and consumer discretionary, into later-cycle sectors, like energy and materials. This would tally with the likelihood of a rise in inflation expectations, given improving employment dynamics and the possibility of a return to real wage growth in the UK.

H2 2014
• Equities are still a relatively attractive option: although absolute valuations have increased markedly over recent years, parts of the equity market remain attractive relative to many other asset classes. Ongoing de-leveraging continues to be a headwind for western economies and companies with structural growth opportunities are likely to be increasingly sought out.

• Wide range of potential outcomes from global monetary policy experiment: the ability of the global economy to withstand higher interest rates will be critical for H2 2014 equity returns. Earlier-than-expected interest rate rises may cause volatility but ultimately represent economic recovery and should benefit equity markets. The resilience of UK exporters’ profits is likely to be tested by the strength of sterling. We would continue to advocate a balanced, diversified approach, incorporating as diverse a range of equity exposures as possible.

• Corporate activity: we are continuing to focus on attractively valued companies that are set to benefit from structural growth trends or a significant level of internal self-help/management change. In the absence of organic growth opportunities, well-funded companies may look to return excess cash to shareholders, or to mergers and acquisitions (M&A) to grow sales and profits. Pfizer’s approach for AstraZeneca, as well as several lower profile deals, bears witness to the renewed corporate appetite for M&A.

Visit the Neptune UK Mid Cap Fund Page

Visit the Neptune UK Opportunities Fund Page

Visit neptunebigideas.com for more market views and comment from Neptune.

Important Information: This is not for Retail Clients. It is intended for Investment Professionals and is not for forward transmission.

Forecasts are not a reliable indicator of future performance. The value of an investment and any income from it can fall as well as rise as a result of market or currency fluctuation and investors may not get back the amount originally invested. Investments in emerging markets are higher risk and potentially more volatile than those in established markets. Past performance is not a guide to future performance. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. Neptune funds may invest more than 35 per cent in government and public securities in a number of jurisdictions.

These are Neptune’s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. This is not a solicitation or an offer to buy or sell our funds. All information is given in good faith but without any warranty. Neptune does not give investment advice and only provides information on Neptune products.

Recommended

FCA-Building-Blue-Sky-700x450.jpg
2

Hargreaves eyes simplified advice expansion on FCA review

D2C giant Hargreaves Lansdown says it has no plans to change its recommended fund lists and is eyeing an opportunity to expand with a possible simplified advice proposition. Earlier today the FCA published findings from a thematic review of the non-advised and simplified advice market. It warned that on some non-advised platforms there is not […]

Stock-Market-Markets-Stockmarket-Finance-Business-700.jpg

Absolute return funds show high equity correlation

Advisers are being warned to scratch beneath the surface of absolute return funds as data reveals they are highly correlated with the FTSE All Share. Of the 57 funds in the IMA UK Targeted Absolute Return sector with three-year track records, 14 have correlations of more than 0.71 with the FTSE All Share over the […]

Wonga
4

Wonga chair predicts drop in profits ahead of business review

Wonga’s new chairman Andy Haste has announced a review of the payday loan company’s practices, including an advertising campaign which has been criticised for “grooming children”. The new Wonga chairman will lead a review focusing on the affordability of its loans, its lending criteria and ensuring its advertising does not appeal to young people. Payday […]

FSCS-Piggy-Bank-500x320.jpg
1

FSCS issues Sipp advice warning as pension claims surge 15%

The Financial Services Compensation Scheme has issued a warning over Sipp advice as the investor lifeboat fund reported a 15 per cent increase in life and pensions intermediation claims. The FSCS’s annual report shows it received 4,248 claims relating to the the life and pensions intermediation class in 2013/14, up 15 per cent on the […]

India budget and the liquidity supercycle

Kunal Desai, manager of the Neptune India Fund, comments on how India’s 2017 budget will impact the Indian economy and equity market. Read article here: Important Information – for Investment Professionals only. Not for Retail Clients.Investment risksThe Neptune India Fund may have a high volatility rating and past performance is not a guide to future […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment