Markets continue to oscillate
John Chatfeild-Roberts - November 2011
Investors such as ourselves have continued to shun European sovereign debt with contagion now spreading to Belgium and France. Even Europe's cornerstone Germany has struggled to find buyers for its bonds, demonstrating the level of concern investors have about the stability of the European construct. This has resulted in the US and, somewhat surprisingly, the UK appearing to be relative safe haven bond markets, with Treasuries and gilts continuing to be well supported. Despite the poor state of the US and UK government finances, their central banks have shown through their acts of "quantitative easing" that they are willing to print currency to finance their debts, a step that Germany is ideologically opposed to, raising the spectre that the Europeans could default on their bonds, resulting in the higher yields and interest burdens that they must face.
We do not see UK gilts as being the low-risk cautious asset that many believe. The UK government, the consumer and the banking sector are all highly indebted requiring austerity, cut backs or further deleveraging. Thus growth in the UK is likely to be a scarce and valuable commodity and inflation may continue to be a serious impairment to anyone purchasing gilts at the currently unattractive yields. However, in the corporate sector, there are opportunities that offer real value in both equity and bond markets. Many UK and overseas businesses are global in nature, have little debt, strong balance sheets, stable sales growth and pay attractive dividends. Over the medium term we can see the total return from investments in these companies can provide solid returns for our investors. We have therefore retained our long term conviction holdings across a variety equities and corporate bonds despite the short term doom and gloom that has enveloped investor sentiment.
We have also retained a reasonable allocation to cash and gold in each of our portfolios to provide protection from further short term volatility and to give us optionality as opportunities unfold. We are confident that our portfolios are placed on a sure footing and we are ready to move quickly as circumstances evolve.
The outlook expressed in this commentary represents the views of the fund manager at the time of preparation and are not necessarily those of the Jupiter Group as a whole. They may be subject to change and should not be interpreted as investment advice. The manager has the power to use derivatives but it is intended that these will only be used for the purpose of efficient portfolio management and not for investment purposes. Quoted yields are not guaranteed. The impact of charges, which may have a greater proportionate effect on returns if investments are sold in the shorter term, are contained in the Key Features (incorporating the Simplified Prospectus). Current tax levels and reliefs will depend on your individual circumstances and details are also contained in the Key Features (including the Simplified Prospectus).