October Commentary

Despite current volatility, driven in significant measure by USA budgetary issues, equity markets have enjoyed reasonable growth this year, supported by rising dividend income.  Fixed interest markets on the other hand have generally stagnated as it becomes clear that central banks will inevitably commence monetary tightening at some point in the reasonably foreseeable future.  In the US this will take the form of, firstly, a slowing down in the Quantitative Easing programme, while it looks very likely that in the UK this has now come to an end as the UK’s economy shows further signs of improvement.

Trying to second guess the timing of the first move by the US is, in my view at least, not a helpful exercise, particularly given the acrimonious nature of the budget debate – but what is perhaps key is that the long bull market in fixed interest investment has probably concluded, to be replaced with a period of relative stability,.  This may last for up to a couple of years until interest rate rises begin, when the outlook for fixed interest investment then becomes negative.

The outlook for developed world equities is, I believe, still reasonable although after several years of strong dividend growth – maybe that particular trend will slow down in 2014.  Some of the world’s rapidly developing economies are however facing difficulties and for the time being at least in my view carry added risk.

Bringing all this together, I am happy to continue to reasonably overweight equities within portfolios, at the expense of fixed interest and cash.