Since ending last Friday’s session at a record 7,022.51, the blue chip index has handed back more than 150 points and, at the time of writing, is trading at 6,866. Numerous headwinds have hit the FTSE and other global markets, including further problems between Greece and the eurozone, a rise in the oil price and a drop in UK inflation to 0 per cent.
Add to that the looming general election – with the leaders’ televised debates getting underway – and it’s easy to see why people may be turning pessimistic, but as our first story-pick shows, there may still be good opportunities out there.
A few of our favourite articles of the week are below. From everyone at FE Trustnet, have a great weekend.
Have UK equity income trusts ever been better value?
First up is an article showing that 84 per cent of IT UK Equity Income trusts (21 out of 25) are now trading on wider discounts than their three year average.
Performance of sectors versus index in 2015
Source: FE Analytics
Clearly, there are risks involved with buying UK equities at the moment. However, given that the sector is throwing off a yield of close to 4 per cent and investment trusts have the ability to smooth their dividends so they can increase their pay-outs year-on-year, the experts say that now is a good time to buy into the sector.
In the next article after that, we looked at three UK equity income trusts that look particularly good value at the moment: namely JP Morgan Claverhouse, Temple Bar and Lowland.
Investec’s Mundy: The 2008-style risks investors are ignoring
There were much more negative articles this week, such as this one which was written by reporter Daniel Lanyon following an interview with renowned contrarian investor Alastair Mundy.
Mundy warns of an imminent crash in developed market equities as he thinks people have become overly confident that central banks can steer stock exchanges away from a repetition of historical bear markets.
Mundy (pictured), who heads up the £2.5bn Investec Cautious Managed fund, says investors should be concerned that there will be unintended consequences of the quantitative easing (QE) programmes of the world’s central banks, which could prompt a prolonged period of down markets.
“This is what happens when investors move away from expensive equities and/or lose confidence in central bankers. It is as simple as that really,” he said.
“The market's loss of faith in central bankers is a particularly huge risk to markets. At the moment equity investors believe central bankers have got their back, but they don't. There have been two bear markets in the last 20 years and both times equity investors thought central bankers had their back and both times the market fell very significantly.”
Do investors need to worry about UK deflation?
In this article news editor Gary Jackson gauged the reaction of various leading industry experts on the news that inflation in the UK is now at 0.00 per cent thanks to a decline in the cost of transport, food, non-alcoholic beverages and oil.
Some experts argued that investors shouldn’t be concerned.
“It looks odds-on that inflation will turn negative in March, when the cut in gas prices by British Gas, the utility company with the biggest market share, will show up in the inflation figures for the first time,” Vicky Redwood, chief UK economist at Capital Economics, said.
“And inflation is then likely to remain around zero/slightly negative for the rest of the year.”
“But we doubt that this will turn into more serious and engrained deflation, given that inflation expectations seem well anchored. We still think that deflation in the UK will be a ‘good’ development, giving households’ income a welcome boost and supporting the economic recovery this year.”
Others were more pessimistic.
David Lamb, head of dealing at the foreign exchange specialist FEXCO, said: "Consumers may be revelling in cheaper prices, but for economists this is a code-red moment. While there is no surprise at the fall in inflation, both the speed and the scale of the drop are alarming. We are in an oasis on the edge of an abyss,” Lamb said.
The tiny Asia fund that’s outperforming its massive rivals
On a more cheery note, reporter Lauren Mason put together an interesting story this week looking at the relatively unknown Guinness Asian Equity Income fund, which recently celebrated its first birthday.
Mason noted how the sub-£1m portfolio was already giving more popular offerings in its sector a run for their money.
Fund versus sectors and index since Dec 2013
Source: FE Analytics
Though the fund has performed well, its short track record and tiny size could well be an issue for investors, according to Parmenion senior investment manager Meera Hearnden.
“We typically wait for a fund to have a three-year track record and assets under management of around £150m before we invest,” she explained.
“The reason for this is to remove some of the risks involved in investing in small funds; the main risk being that we want to avoid becoming a significant holder of the fund which would be very easy at only a fund size of $400,000. If we needed to exit the fund, it could potentially lead to liquidity issues as well as large spreads or unfavourable dilution levies.”
Why I’m patiently waiting for Neil Woodford’s new trust
The first article of the week was a personal piece written by FE Trustnet head honcho Joshua Ausden on why he won’t be buying star manager Neil Woodford’s new Patient Capital Investment Trust – despite all the press surrounding it.
Ausden’s reasons include the fact that he already uses Woodford’s open-ended fund, the manager will need a year to shape the portfolio to his liking, and the chances are it will fly on to a premium after its IPO.
However, he fully understood why a few of our regular commenters didn’t agree with his decision.
“Yes it’s perfectly true that it won’t be exactly as he wants it to look. However, if I were to have one criticism it would be that you’re trying to be too clever,” Hargreaves Lansdown’s Mark Dampier said.
While Rowan Dartington’s Tim Cockerill said: “I understand where you’re coming from, but it doesn’t really concern me. The trust has a very clear, straightforward strategy. It may take one year to get there, it may take two, but in the meantime the make-up of the trust isn’t risky.”
Five fund managers that every investor should know about
With many people enticed by numerous ISA adverts into investing for the first time at around this time of year, production editor Anthony Luzio thought it would be an opportune moment to give novices a round-up of some of the biggest names in the industry.
The selection of Neil Woodford, Giles Hargreave, John Chatfeild-Roberts, Richard Woolnough and Angus Tulloch meant there was something for every type of investor, whether they were after a defensive, aggressive, multi-manager, bond or Asia Pacific fund.
Every one of them is a member of the FE Alpha Manager Hall of Fame – made up of managers who have retained the award in every year since its inception.