The anticipated summer rise in American interest rates appears to be on hold after May statistics showed a dramatic fall in US job creation.
This worrying decline allied to Brexit fears has resulted in renewed buying of developed world government debt, for example Gilts in the UK and Treasuries in the US, even when in the long term the capital value of these assets must fall. For example, gilts issued at a £1 with a promised rate of annual return until maturity are trading as much as 60% higher than their face value. Since at the known maturity date the value returned to the holder cannot exceed £1 investors will at some time lose money. However with fear and uncertainty ruling the markets once again investors believe there is short term value in holding these assets. The income from these gilts/bonds has also been reducing since the percentage return is based on the £1 issue price not the current price, as the price goes up the income/yield percent falls. Regulatory constraints on pension funds are also affecting the gilt market.
Predicting how short term markets will perform is difficult and patience is required by all investors as well as ensuring a wide spread of different funds from many fund groups is held. This Save & Invest philosophy helps reduce volatility and a lower chance of dramatic under performance. 2016 has been difficult, the S&P 500 had the worst start to a year since the Great Depression , falling by 11%, but by 6th June it was up 3.7%. The FTSE 100 is still slightly in negative territory , down circa 2%. Even Hedge Fund Managers, the one time highly paid rock stars of the fund management world have struggled to make money or even keep up with Equity Indices. Despite this global gloom there are some veteran fund managers with sunny outlooks. Nick Train of the investment trust Lindsell Train, says bad news is over done and points to many positive factors, including the beneficial effect of lower commodity prices for global growth. He also believes we will see continued growth in US profit margins.
Finally after a good run for UK Commercial Property, funds in this sector are experiencing outflows causing managers to reduce the price of their funds, sometimes by as much as 5% overnight. This is managers managing fund flows in this illiquid type of asset but we anticipate a more general slide in UK Commercial Property Funds as surveyors revalue property portfolios for current market demand. It was for this reason that early this year we advised clients to take their gains and move out of UK Commercial Property until there are signs of the next positive cycle before returning.