Fund manager commentary
British Assets Trust NAV Total Return was 3.9%, compared to a total return of 4.8% for the composite benchmark index – which is 80% FTSE All Share/20% FTSE World ex UK. The FTSE All Share was up 5.2% and the FTSE World ex UK rose by 2.6% in the month.
The UK economy has continued its recent strength with a succession of positive signals which has further bolstered sterling against the US dollar and yen in particular. Many of the international businesses we hold have had sterling estimates reduced in the period as a result of this currency impact. This is also why, despite US & Europe being strong in local currency terms, the overall performance of markets outside the UK was diminished when translated back to sterling. Japanese equity markets performed poorly due to ongoing profit taking after the 2013 rally and a pause in reforms, coupled with anxiety over the impact of the consumption tax increase in April.
Equity markets rebounded strongly for much of the period as positive fund flows into equities continued and evidence grew that the US economy was proving resilient to the impact of the extremely cold weather. However as the month ended the mood changed with the emergence of the crisis in Crimea.
At the sector level in the UK, which still constitutes the majority of the benchmark, healthcare, consumer goods and to a degree the energy (which had been awful in January) sectors were the main positive contributors.
The banking sector was very poor with a succession of disappointing updates as the forecast restoration of dividends were pushed back and managements pointed to the need to further rebuild capital, under ongoing pressures from regulators. Dull investment banking outlooks compounded the near term gloom.
Although the near term outlook for emerging economies in general and China in particular remains mixed, overall we remain of the view that with the global economic recovery continuing, equity markets can make more progress through 2014, although they will need to demonstrate the ability to grow into current elevated multiples. On a less positive tack the overall outlook for dividend growth as a UK investor has diminished slightly with the ongoing strength of sterling, particularly against the US dollar, coupled with delays in the resumption of meaningful dividend distributions from the banks both a near term drag.
As at 28 February 2014
The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market movements. Past performance is not a guide to future performance. When you sell your shares, you might get back less than you originally invested. If markets fall, gearing can magnify the negative impact on performance. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Emerging Markets, Unquoted Companies and Smaller companies carry a higher degree of risk and their value can be more sensitive to market movement; their shares may be less liquid and performance may be more volatile. The fund may invest in hedge funds or private equity funds which are not normally available to individual investors, exposing the fund to the performance, liquidity and valuation issues of these funds. Such funds typically have high minimum investment levels and may restrict or suspend redemptions or repayment to investors. The asset value of these shares and its prospects may be more difficult to assess.