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How has the FTSE performed this quarter?

FTSE Market

With the hallmarks of a “risk-off” environment, defensive assets – namely physical property, bonds and cash – outperformed all equity markets over the first quarter of the year. In keeping with recent trends, the UK lagged both the developed and emerging world.

Somewhat ironically, the better than expected wage growth figures that came out of the US have been credited as the catalyst for the equity sell off at the end of January. This ‘positive’ surprise stoked fear of a quicker Fed rate rising cycle and in turn a more restrictive monetary environment for individuals and companies. The rest of the world duly followed the US down.

Talk of the potential for trade wars is a step away from the synchronised growth rhetoric prevalent at the start of the year.

This initial hit to equity markets was compounded by the introduction of a number of protectionist policies by Donald Trump, primarily aimed at China. Talk of the potential for trade wars is a step away from the synchronised growth rhetoric prevalent at the start of the year. This contributed to leave all developed markets down by more than 4% by the end of the quarter, with the exception of Japan at -2.63%, insulated by a stronger yen.

What about emerging markets?

Emerging markets fared relatively better with a loss of 2.15% over the period. While generally considered more risky, a weaker US dollar eased the regions’ debt burden and provided somewhat of an offset to the aforementioned negative events. The asset class was also the strongest beneficiary of the brief equity market rally that greeted the new year.

Brexit woes continue

In a more roundabout manner than usual, Brexit continued to act as a drag on the UK market. The positive sentiment arising from the transition deal agreement fed through into sterling strength. The currency was further boosted by the Bank of England stating that a rate rise would be required “somewhat earlier”. Whilst also pulling down the returns of most foreign markets (due to a worse conversion rate), the rise in sterling weighed heavy on the UK equity market which is much dependent on overseas revenue; the opposite side of the relationship that insulated domestic investors in the aftermath of the Brexit vote. The result was a negative 6.87% return for the FTSE All Share Index.

Yields increasing

The Bank of England comments also helped push yields higher, with the 10 year gilt yield close to 1.70% by mid-February. This steadily fell back to 1.35% as equities remained out of favour, resulting in UK overnment bonds producing an overall positive gain of 0.26%. The corporate bond space fared less well with a -1.46% return, as credit spreads widened as the quarter drew to a close.

Whilst all markets produced a positive 12 month return, the virtues of a multi asset portfolio were highlighted as bonds and property both provided a return profile quite uncorrelated to that of equities.

Regardless of whether or not the first quarter is representative of the year ahead, these diversifying characteristics remain imperative for robust and sustainable risk management within an investment solution.



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