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THE INVESTOR
THE INVESTOR CENTRE
G
lobal equity markets have risen
over the past three months on signs
that economic growth is accelerating
amid loose monetary policies in the
developed world.The resolution of the
US government shutdown in October
and expectations of a reduction in the
pace of its asset-purchase programme
being pushed further into 2014 (though
this proved false) served to support
equity markets. Meanwhile, the outlook
for nancial stability in the eurozone has
continued to improve.As such, we’ve
seen a big divergence between developed
and emerging market performance,
with emerging markets hit the hardest
since talk of tapering began in May.
Our outlook remains one of slow and
prolonged economic recovery, against
a backdrop of European sovereign debt
concerns and scal austerity in the
developed world. Our strategy remains
constant – it seeks to invest in high-quality
companies at attractive valuations.We
view high-quality companies as those that
can sustain pro t margins and deliver
positive returns through the economic
cycle.We view growing and sustainable
dividends as clear evidence of these sorts
of companies. In aggregate therefore, we
seek out companies that o er attractive
yields, sustainable income and capital
upside potential.
INVESCO PERPETUAL
Global Equity Income
Big divergence between growth of
emerging and developed markets
Financial stability
in the eurozone has
continued to improve
Nick Mustoe
H
igh-yield bonds have recorded
positive returns in the past three
months, outperforming the wider
corporate bond market and core
government bonds such as gilts.The past
three months had seen mixed performance
across the bond market, with the asset
class continuing to be sensitive to changing
expectations for US Federal Reserve
quantitative easing.Yields have also felt
upward pressure from continuing signs
of increasing economic growth in the
major developed economies. Employment
growth and consumer spending have
improved in the US while business
sentiment has picked up in the UK and in
the eurozone. However, stronger growth
is typically more positive for high-yield
bonds, which are sensitive to corporate
earnings.The high-yield bond market
has also been supported by a low rate
of defaults (according to Moody’s, the
default rate for European high-yield bonds
was 3.2% in the 12 months to October,
unchanged from a year before) and
ongoing demand for income.With many
traditional sources of income depressed,
investors have been increasingly willing to
take more credit (default) risk and so high-
yield bond yields have been pushed down
to relatively low levels.
INVESCO PERPETUAL
Corporate Bond
Yields feel upward pressure from
continuing signs of economic growth
Business sentiment
has pickedup in the
UKand the eurozone
Paul Read and Paul Causer
N
ovember’s modest decline in the
FTSEAll-Share meant the index has
remained within 2% of this year’s peak
which was set in May. In contrast to some
of the global concerns of previous months,
such as the limit on US government
borrowing, this month investors were
treated to a thawing in the poor diplomatic
relationship between the US and Iran.
Meanwhile, from the components of UK’s
GDP for quarter three, stock-building
by businesses was con rmed as being the
strongest contributor.Though concerns
over the withdrawal of monetary
stimulus in the US temporarily waned,
tapering of this extraordinary policy
was then announced.The main question
relevant to the outlook for the UK stock
market relates to how a market driven by
quantitative easing can be transformed
into one driven by the strength of the
underlying economy.With UK equity
markets now at a level anticipating
upgrades to earnings for 2014 and beyond,
we believe that the performance of the
market over the past year is unlikely to
be repeated over the coming year.The
portfolio is positioned with a focus on
companies which can deliver attractive
cash ows, earnings and dividend growth.
It therefore has the potential, we believe,
to deliver an attractive positive return
over the longer term.
INVESCO PERPETUAL
Invesco Perpetual Managed
Strategic Managed / UK Equity,
Income Distribution, UK High Income
With US tapering having begun,
UK looks to strength of economy
The performance of
themarket is unlikely
to be repeated in 2014
Neil Woodford
