Fund manager commentary
British Assets Trust NAV Total Return reduced by 2.6%, compared to a fall of 3.1% for the composite benchmark index – which is 80% FTSE All Share/20% FTSE World ex UK. The FTSE All Share and the FTSE World ex UK were both down 3.1% in the month.
After a positive start, the month ended with very weak markets as volatility in emerging markets increased again and concerns were raised over the low levels of underlying inflation in Europe. These factors lead to what was, arguably, a healthy bout of profit taking after the strong close to 2013.
Consumer goods and energy were the worst performing sectors. Consumer goods stocks are suffering from an unpleasant cocktail earnings downgrades (on the back of both foreign exchange and underlying weakness in consumption trends in the developing markets) and stretched valuations. The stabilisation in demand from consumers in the previously weak developed markets has not been sufficient to offset these factors.
A very poor refining market has impacted earnings at all of the oil majors which, coupled with a major profit warning from Shell has shaken confidence in the energy sector still further. There is however evidence of change in management behaviour in this sector with BP & Total in particular evidencing a focus on capital discipline, cashflow improvements and in the case of BP a simplification of their business model that should stand them in good stead for an improved medium term outlook.
Health care stocks have been very strong, as the potential of a new wave of early stage cancer drugs have caught investors imagination. AstraZeneca has enjoyed a very significant rerating given its purported exposure to this area.
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 dollar, coupled with delays in the resumption of meaningful dividend distributions from the banks both a near term drag.
As at 31 January 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.