A
pril turned out to be a relatively quiet
month for nancial markets as the
tensions between Ukraine and Russia, and
Western sanctions, overshadowed improving
global economic data.The late Easter break
inApril meant that a number of nancial
markets were closed, prompting a slowdown
in activity, as did the onset of the investment
grade corporate bond reporting season. In
the US, Federal Reserve chair JanetYellen
noted that while the outlook for the US
economy looks bright, the housing market
remained weak and unemployment was still
too high, meaning that US interest rates will
be kept low for the time being. In Europe,
elections for the European Parliament
highlighted people’s growing concerns about
the European Union, particularly in the UK
and France. However, this appeared to have
very little e ect on markets. In India, equities
rallied as the Bharatiya Jonata party, led by
Narendra Modi, won a comfortable victory
in the country’s general election.While
economic growth in the US improved,
in ation remained subdued. In China,
economic growth continued to disappoint,
but the Chinese government still expects
the economy to grow at an annual rate of
7.5% in 2014.The European Central Bank
delivered expected further stimuli in June
by lowering the deposit rate to -0.1% and
introducing non-sterilised intervention,
which is the rst step towards full-blown
quantitative easing.
U
K economic data released at the start
of the quarter maintained its positive
trend, even showing a pick-up in the pace
of the UK recovery.Although conventional
gilts’ yields declined in the rst two
months of the quarter, they began rising in
June on expectations of a rate rise from the
Bank of England (BoE) sooner rather than
later, based on the improving UK economy
and comments from BoE governor Mark
Carney.Yields of index-linked government
bonds, which similarly declined inApril
and May, have also risen in June.There
was a slowdown in the RPI gure in
March to 2.5% year on year (yoy), where
it remained inApril, falling to 2.4%yoy
in May. CPI fell to its lowest level in four
and a half years in March at 1.6%yoy; it
rose to 1.8%yoy inApril, only to fall back
to 1.5%yoy in May. GDP grew by 0.8%
in Q1, compared with 0.7% in Q4 2013.
The BoE released its quarterly In ation
Report in May, which was little changed
from the previous report.The outlook for
GDP growth was improved slightly and
CPI in ation is forecast to be close to but
under 2% for the near and medium term.
Unemployment continued to contract,
falling to 6.6% inApril.The fund has
been generally positioned in line with the
benchmark over the month.
Nimish Patel and Eleanor de Freitas
THE INVESTOR CENTRE
THE INVESTOR
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BLACKROCK
Core manager: Global Equity
ECB’s stimulus measures are first steps
to full-blown quantitative easing
BLACKROCK
Index Linked Gilts
UK economic recovery picks up with
improved outlook for GDP growth
US interest rateswill
be kept low for the
time being
The outlook for
GDP growthwas
improved slightly
Francis Rayner
H
eadline progress of UK equities in
the second quarter masked signi cant
underlying changes. InApril, the UK
market rose by 2.2%: large-caps rose by
3.1%; mid-caps fell by 2.3%.This gap of
5.4% over the month is one of the most
extreme in a record stretching back to
1986. UK interest rate cyclicals such as
housebuilders led the rotation but the
broader trend can be described as a
reversal of last year’s momentum.
This meant some stocks that had been
performing strongly, including easyJet,
saw shares fall on little change in
fundamentals, causing the fund to lag the
market over the period. Our fundamental
investment approach and typical
investment horizon of two to three years
enables us to look through periods
of short-term market volatility, seeing
them as an opportunity to add to holdings
where our conviction remains strong;
and we have added to easyJet, where we
see earnings growth driven by growth in
capacity and gains in market share. Large
positions in Compass and Reed Elsevier
bene ted from positive earnings news.
Compass announced that it would return
£1 billion to shareholders through a
special dividend following an increase in
rst-half pro ts. Reed performed well
following the company’s end of April
update forecasting steady earnings growth
for 2014.The fund is well placed for the
current market environment.
BLACKROCK
UK & General Progressive
Broader trend in UK equities reverses
the momentum of last year
The fund iswell
placed for the current
market environment
Luke Chappell
