Spring Investment Review
We saw the continuation of a preference toward risk assets in February as sentiment moved from pessimism to optimism largely due to the US-China trade deal nearing an amicable agreement and the likelihood of a hard Brexit receding. In the UK, Theresa May is still trying to secure an amendment to the backstop situation and get another vote in mid-March. If this is positive, we are more likely to see a soft Brexit or a delay before a soft Brexit. Sterling has strengthened on the back of the increased possibility of this happening but we are wary of the third option of ‘no deal’ still remaining on the table. Despite politics still driving sentiment across global markets, company earnings remain largely positive although economic growth figures have been mixed across the EU and the Bank of England has lowered its projections for GDP growth from 1.7% to 1.2% for 2019.
In the EU, the ECB are likely to renew its Targeted Long Term Refinancing Operations (TLRTO’s) – which are, essentially, cheap long term loans for banks – to provide a boost to what appears to be a stalling economy. With Italy slipping into a technical recession and Germany seeing growth slow to 0.0% in the last quarter of 2018, investors and the ECB chief economist are concerned that the slowdown in the Eurozone is broader and more persistent than they had originally thought. With Spain unable to agree their budget and subsequently calling for an election, the geo-political influence on markets across the Eurozone continues, despite consumer confidence increasing for the second month in a row.
The US continues to see earnings expectations fall for future quarters but the news of stronger than expected growth in Q4, with 70% of companies providing better than expected earnings, helped US equities gain in February. The suspension of the proposed tariffs on $200bn of Chinese goods was another positive for US equities as hopes of a mutually agreeable trade deal seems to move closer. Additional political news in February saw President Trump use his presidential powers to declare a ‘state of emergency’ to unlock funds to build the border wall with Mexico and he also intimated that a weaker dollar might be better for the US, as it seeks to make their exports more competitive.
We have maintained our overweight to risk assets and retain a higher than normal cash level at the expense of fixed interest. We still have concerns around the credit ratings of the corporate bond fund sector and are actively looking for a fixed interest fund that has an appropriate risk/return profile with which to invest the additional cash.
The views and opinions within this document are those of Casterbridge Wealth at time of writing. They should not be viewed as indicating any guarantee of return from an investment managed by Casterbridge Wealth nor as advice of any nature.
Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Some of the information within this document is based upon Casterbridge Wealth estimates.