Fundsnet News

Russian equity market ‘weakened’

May 18th, 2012

The share market in Russia has declined in recent weeks after an impressive period of growth as concerns over the eurozone crisis spread east, according to the latest analysis from Baring Asset Management Limited.

It pointed to the fact that emerging markets are not currently in favour – given the generally high levels of risk aversion among investors – as one factor in the stock market's decline.

In addition to these macroeconomic factors, Barings indicated the internal issues of political uncertainty facing the Russian government and concern over the ongoing reform agenda are playing a role in squeezing investor sentiment.

"One example of this was seen recently, when the market was not prepared for newsflow regarding the taxation of gas producers, and the loss of the private sector's more favourable tax treatment," the company noted.

However, it expressed some optimism for the future of trading in Russia as increased levels of transparency and business growth combine to encourage people to get involved with the market.

"Potentially, it creates a fair competitive environment and could be the precursor to opening the lucrative pipeline export market to the private sector," according to Barings.

This positive outlook is accentuated by strong domestic growth indicators, with consumer spending looking especially positive.

Car sales have hit record levels and are rising at an annual rate of roughly 15 per cent, while Barings predicts that the estimate of 3.3 per cent growth in GDP is too conservative given current market conditions.

Even if growth does just merely reach this level, Russia is likely to stand out as an impressive performer in comparison to the depressed eurozone economies, making its current slump a temporary issue, concluded Barings.

The Russian Micex index is headed for its biggest loss of the year amid concern caused by Europe's deepening debt crisis and a retreat on crude oil values, reports Bloomberg.

DFM ‘can be helpful for some investors’

May 18th, 2012

Discretionary Fund Management (DFM) services can be of benefit to investors as long as they are implemented correctly and in line with guidance issued by the Financial Services Authority (FSA), according to Skandia.

It argued that it is important to have the correct relationship in place when setting up a DFM service, after a recent report from the FSA stressed the importance of putting discretionary regulations in place.

Certain "off-the-shelf" DFM arrangements do not put any kind of contract in place with the customer, placing them foul of the FSA's new regulatory framework and causing problems for investors.

All three parties in the relationship – the customer, advisers and the DFM operator – have a number of responsibilities to ensure everything is carried out according to the guidelines, according to Skandia.

Graham Bentley, Skandia UK's head of proposition, warned: "The fact of the matter is, customers expect a tailored investment management solution when they use a DFM and many may not be getting that."

He urged advisors to review their current arrangements to ensure they are offering investors the best service possible, especially in the context of the FSA's decision to crack down on badly-managed DFM investments.

"There is a service issue at stake here, not to mention the compliance and suitability issues, which could have wide-reaching implications for advisers," added Mr Bentley.

Given the potential costs for customers involved in setting up a tripartite DFM arrangement it is crucial companies get it right, concluded the proposition chief.

Ryan Hughes, portfolio manager at SIG, told CityWire the European Court of Justice's ruling on VAT treatment of DFMs is likely to lead to a reassessment of how they are handled.

He explained that "simple techniques such as rebalancing" will no longer have such a strong rate of benefits for investors under the new rulings.

More volatility expected in markets

May 17th, 2012

The market in Europe is likely to continue to be volatile over the coming months amid political changes and possible action from the European Central Bank (ECB), JP Morgan Asset Management has suggested.

Nick Gartside, international chief investment officer for fixed income, said whether or not the ECB decides to support the economy through low interest rates and other liquidity measures will have a major impact on the share market over the coming months.

"One of the other differences to a year ago is the changed political landscape in Europe and the vacuum as leaders settle in to new roles," added Mr Gartside.

He suggested that this regrouping effect and the "strike level" of the ECB's potential liquidity measures are the two major factors currently impacting the market.

This could potentially create opportunity for investors as risk assets continue to sell, the expert concluded.

Skandia Investment Group recently suggested that Germany is an anomaly among the eurozone because of its positive performance.

Germany ‘continues to enjoy boom’

May 16th, 2012

The latest economic reports from Germany suggest it is continuing to outperform its counterparts in the eurozone and much of the developed world, according to Skandia Investment Group.

Rupert Watson, head of asset allocation at Skandia Investment Group, pointed to data revealing 0.5 per cent growth in the first quarter of 2012 as indicative of the unique role Germany is playing in Europe.

Impressive rates of economic expansion are being driven by high export levels to emerging powers such as China and growing consumption, Mr Watson suggested.

"The ongoing strength of the German economy will eventually help to rebalance the eurozone economy as a whole to everyone's benefit," he predicted.

However, this process is likely to take years rather than months, with the majority of European countries lacking Germany's impressive stability.

A report from the International Monetary Fund (IMF) today pointed to a cross-European revival as crucial in rescuing the Italian economy.

Greek political system ‘completely fractured’

May 16th, 2012

Although the political uproar in Greece is the main focus for many investors looking at the situation in the eurozone and could affect the future of the common currency, a Skandia Investment Management commentary has dismissed it as "a sideshow" to the real issues facing trading on the continent.

John Ventre, Skandia portfolio manager of spectrum and multi-asset funds, admitted that the situation currently unfolding in Greece is discomfiting.

He argued that it is necessary to push for unity in a time of economic crisis, the opposite of what is being seen among the Greek populous at the moment, with the political system in the country "completely fractured".

Furthermore, Mr Ventre noted that a recent poll found 78 per cent of Greek people wish to remain in the euro – an unlikely outcome unless some kind of compromise can be reached between various political parties, as the current uncertainty and bickering leaves Greece vulnerable to expulsion from the 17-nation currency.

Party leaders in Athens have called for a second election next month after failing to piece together a unity government under prime minister Karolos Papoulias, the Guardian reports.

Mr Ventre described the ongoing discussions in Greece as a "sideshow" to the main events that will have a serious impact on investment prospects in the European Union and beyond.

"The risk is that 2012 is election year for Germany and the Netherlands needs a new government," he argued.

Francois Hollande's narrow win against Nicolas Sarkozy in France is endemic of a tendency toward "uncertain results", a trend which could lead to a "tough slog for European markets" over the coming months, according to the analyst.

He concluded that risks currently look "priced-in" to the market, but warned investors to examine the socio-political situation in Europe carefully before jumping into any purchases.

UK prospects ‘do not look positive’

May 15th, 2012

The UK does not look set for growth over the course of 2012 as macroeconomic conditions and an austerity-focused budget lead to difficult economic conditions for the country, according to an expert.

Mark Burgess, chief investment officer at Threadneedle Investments, warned that the economic "quagmire" currently facing many European countries is also likely to have an impact on Britain given its reliance on trading with the continent.

He added that austerity conditions are only beginning to affect the economy, while the Bank of England's decision to end its process of quantitative easing temporarily could also have a negative impact on business growth and share prices.

With this in mind, Mr Burgess explained that Threadneedle Investments is predicting zero per cent growth in 2012, with only a jump to one per cent in 2013.

Gilts are also unlikely to offer much value over the coming year, added the investment expert.

However, he noted that a number of British companies remain positive investments and continue to be "overweight UK equities".

Mr Burgess also offered a gloomy outlook for the rest of the European market, pointing out that Germany looks increasingly isolated as austerity-focused measures become unpopular with a number of countries in the single-currency market.

France's new government's ostensible plans for growth and stimulus under Francois Hollande may strike a chord with the disaffected populace of countries like Greece, Italy and Spain, suggested the investment officer.

The emerging market offers a rare chink of positivity, as the analyst noted that real consumption levels remain strong and "policy tools to support growth abound".

"We believe that the earning potential of emerging market growth in selected developed and emerging companies remains undervalued," he concluded.

Blackrock recently forecast a continued period of rapid expansion for the emergent market.

European debt crisis ‘intensifies’

May 15th, 2012

The biggest threat to the global economy remains the ongoing debt crisis in Europe as recent election results make the trading situation on the continent uncertain, according to the latest analysis from Blackrock.

It argued that investors may be less confident about the ability of policymakers to cope with the recessionary climate following the election results in Greece and France, given that both newly-elected governments have signalled their intention to move away from unpopular austerity cuts and attempt to stimulate growth through other means.

This has placed downward pressure on stocks and equity markets as the uncertainty over the continued viability of the European Union's austerity plan is called into question, the company claimed.

"Clearly, the debt crisis remains a significant downside risk, but we maintain our view that developments in Europe are unlikely to derail global economic growth," said Blackrock.

Despite the lack of an obvious answer to the problems facing the single currency, the firm urged investors to look past the bearish short-term aspects of the market and consider the prospect of long-term growth in the US.

"The US appears to be in the midst of a manufacturing renaissance as most data is pointing to an expansion in manufacturing activity," according to the organisation.

It pointed to improving consumer confidence and growing business sentiment as further evidence that the world's biggest economy is on track for a period of slow expansion.

Furthermore, the latest quarterly results from the US indicate corporate earnings continue to be a "bright spot" for the market, with corporations taking advantage of low interest rates and good productivity to boost their bottom line.

Paul Brain, manager of BNY Mellon Asset Management subsidiary Newton Global Dynamic Bond Fund, recently suggested the political upheaval in the eurozone could have a major impact on share prices.

UK construction stats ‘unwelcome’

May 14th, 2012

Henderson Global Investors has described the latest construction statistics in the UK as "doubly unwelcome", indicating a lack of building activity as well as a slump in job creation.

In its latest property update, the investment group pointed to the Office of National Statistics' decision to record a 4.9 per cent drop in construction over the last quarter.

This is in comparison to the forecast decline of three per cent, indicating the impact ongoing macroeconomic economic problems have had on the sector.

"There has been some criticism that the country is building too few houses given the demand for homes in the economy, with only 134,000 built in 2010," the firm pointed out.

It suggested that a national building programme would certainly be a prospect British construction companies would "relish".

In a recent publication, Henderson suggested 2012 will see very little growth across the global economy, with little room for the UK to stimulate its economy and weak demand in Europe.

Property investors ‘moving back to core markets’

May 14th, 2012

Aberdeen Asset Management has argued that many property investors are moving back to "core markets" in the UK after being spooked by the difficult economic conditions currently facing Britain.

This largely entails a shift towards London and the south-east both in terms of residential and office developments, according to head of property and multi-manager Richard Gale.

Mr Gale argued that many of the prices to be found in this market are "quite significantly above what one would expect on a fundamental basis," indicating the broad discrepancies between London and the rest of the UK in terms of property values.

"There is a big gap between prime and secondary assets, development starts are significantly lower and debt for real estate is pretty expensive and hard to source," added the property expert.

He pointed to the decision by many lenders to drop out of the market as another factor in altering the complexion of the UK's residential and commercial property sales, noting that many investors are finding it difficult to create or find any income growth across the board.

However, a significant trend making up for a lack of interest in commercial office space is the rise of supermarkets "in the investment universe".

Mr Gale suggested this is linked to the growing importance of security of income, meaning that "retail prices index-linked growth with secured covenants" is a good way for investors to get on to the property ladder in the current climate.

This is why supermarkets and hotels are continuing to perform well despite the general slump, he concluded.

Savils recently revealed that commercial development activity improved for the second consecutive month in April, with roughly one-quarter of panellists reporting a jump in activity.

On the other hand, 17 per cent of respondents to Savils enquiries mentioned a decline in the amount of commercial development taking place.

Political changes ‘creating issues in the eurozone’

May 11th, 2012

The political changes taking place across the eurozone are having an impact on the growth of the economic markets.

Paul Brain, manager of the Newton global dynamic bond fund, part of BNY Mellon Asset Management, questioned that as the market enters into another round of anxiety in the eurozone, questions need to be asked if the change in political situation would have an impact.

He noted that in some situations it does seem as if there have been negative changes taking place, with the economic situation appearing to have become worse, which has started to affect even some of the core northern European nations.

"On the other hand, the European Central Bank has adapted to address the new developments, and is more willing to provide the liquidity required to keep the financial system going," Mr Brain added.

Skandia Investment also recently looked towards the situation in Spain with the country being downgraded by Standard and Poors, with the group advising some attention be paid to the short-term impact.

China ‘to continue to see strong rate of growth’

May 11th, 2012

The growth of the Chinese markets is likely to continue for some time to come, although it is predicted there will be a slowing down in the current strong rate.

Assessing the changes that are likely to be seen in the Chinese economy in the coming months, Stuart Parks, head of Asian equities at Invesco Perpetual, explained that there will be a number of differences seen.

He explained that over the past ten years, the Chinese model of market development has been to simply offer export led expansion that was supported by large amounts of fixed asset investment growth that will provide assistance when the export markets are not as effective.

However, changes in the export markets have been a key reason why this model is no longer working as well, with fixed asset investment also currently at levels that Mr Parks considers to be unsustainably high.

Despite these changes, Mr Parks said this is unlikely to be the end of China's growth, although the days of seeing a rate of eight per cent or above was likely to be in the past.

He highlighted that the fundamental building blocks for growth still remain in place across the country, with a willingness to change being seen from the government down to individual citizens.

In addition, the cost-effectiveness of manufacturing products in China will remain for some time, which will help in turn to increase the country's productivity.

There is also a high availability of capital that has been created by a combination of high savings rates and a solvent banking system.

"There is a huge opportunity in the stocks which can tap into Chinese growth and which have not already become overvalued," Mr Parks added.

Looking closer to home, Invesco Perpetual recently announced it was offering a two per cent discount on the entry charge for its Isas and Isa transfers, down from the five per cent that is normally offered on its products.

Pensions to benefit from QE reprieve

May 10th, 2012

The decision by the Bank of England to hold off from any further quantitative easing (QE) has been stated to be of huge benefit to pensions savers by Saga.

The group said the decision has come as a welcome relief, with the bank deciding to hold off from any further rounds of gilt buying in the immediate future.

Saga added that it could be of benefit for the Bank to reconsider assumptions that pushing down long-term interest rates would be a good expansionary policy.

"Especially once rates have reached such low levels, any benefits of forcing them down further are bound to be diluted," the group stated.

It added its concern to the Bank seemingly ignored inflation overshooting and stating instead that QE has worked as a way of stabilising the economy.

Saga also recently called on the government to listen to the calls of pensioners to offer them a good deal in retirement, since the over-55s make up such a large proportion of voting adults.

Standard Life highlights repercussions of natural disasters

May 10th, 2012

The impact of natural disasters can be far-reaching and affect more than just the immediate area that sees the incident.

Highlighting the issues that arise when a natural disaster occurs, Standard Life Investments stated that the effects of the weather can be long-lived, adding complicated features to both policy making and how investors can understand the business cycle.

In its new Global Perspectives report, it looked at how natural forces have an impact on the economic environment.

Douglas Roberts, senior international economist with Standard Life Investments, said there have been a number of economic disruptions over recent years that had been caused by the weather.

He noted that the greatest impact in recent times was seen as a result of the earthquake and tsunami that affected Japan in March 2011, with reconstruction efforts in the area only now starting to take shape.

While this growth of construction will help to bring the country back to its former level, Mr Roberts noted that it has not seen any increase to its economy, with the intervening period between the disaster and the return to stability a potential loss on its gross domestic product (GDP).

He added that any periods of extreme weather can actually have a negative impact on the overall economy.

"The US National Science Foundation has observed that the influence of routine weather variations is as much as 3.4 per cent of US GDP. As the incidence of severe weather events increases so too does the cost of insurance, impacting all sectors of the economy," Mr Roberts added.

BlackRock recently noted in its assessment of the US markets that a period of growth seen in the country could be attributed to a period of warm weather.

It stated that periods of growth could be linked to the warm weather that has already been seen across a lot of the country, but that this could have been "borrowed" from the growth that would normally be seen with the arrival of summer.

Tech stocks boosted by growth of mobile

May 9th, 2012

The trend of investing in technology companies appears to be on the rise again, with many investors spurred on by the growth of the mobile sector to invest their funds.

Assessing the changing trends in the market for the FT Money Show, Elaine Moore from FT Money said that although tech funds and stocks had a bad reputation in the past but they have now managed to improve thanks to the growth of mobile technology.

She highlighted that the dot com bubble which burst a few years ago seems to have put a lot of people off from getting involved with the tech sector.

Ms Moore explained that fund managers and analysts are now very certain that it will be different in this part of the cycle to invest in these funds.

She noted that tech is now having "its moment" and because of this everything is changing in how people look at the funds, with the advancements of mobile handsets and how dependent people are on them influencing how investors are regarding technology.

"The handsets are changing. How we access the internet is changing, how the battery life of the device we use is changing, it’s lasting for longer, cloud computing is coming in," Ms Moore added.

Now everything is becoming faster and lighter and quicker it is attracting the attention of people who are normally only considering using safer stocks.

She said that while many companies that are producing technology products are in very good shape at the present time, there are others that are not performing as well as investors should still show some caution as not every stock is the same.

The FT Money Show recently also spoke to Jane Sydenham, investment director at Rathbone Investment Management, who said small cap stocks are beginning to become more popular among investors.

Legal and General Investment Management sees good results

May 8th, 2012

Legal and General Investment Management (LGIM) has reported seeing a good series of results recorded for the first quarter of the year.

The group reported seeing new business inflows increase by 29 per cent during the first three months of 2012.

As a result of this increase, the sector is now valued at £2.6 billion, up on the £2 billion recorded during the same timeframe of the previous year.

In addition, the total assets under management grew to £383 billion, coming on top of the £371 billion full year results taken during 2011.

The LGIM active fixed income and liability driven investment (LDI) options continued to be in strong demand, with combined gross business inflows in to both of the funds increasing to £3 billion, significantly higher than the £2.4 billion seen for the first quarter of last year.

The international diversification of the group continues at a rapid pace, with the assets under management from overseas clients now increasing to a value of £20.3 billion.

Mark Zinkula, chief executive officer for LGIM, said the group has seen some impressive growth over the last quarter.

"Our fixed income proposition continues to be popular with clients and our LDI solutions capabilities are increasingly recognised and sought after – it is particularly pleasing to see these areas attract gross inflows of £3.0bn from new clients this quarter," Mr Zinkula added.

Looking to the rest of the year, he said offering a more diverse international programme continues to be a strong focus as the group continues to see positive growth across the market.

The group has also recently commented on how it has seen a strong rate of growth across its key markets, with its operational cash generator increasing to £249 million during the first quarter, up from £245 million from the same period of 2011.