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THE INVESTOR
THE INVESTOR CENTRE
G
lobal equity markets have risen
on signs that economic growth is
accelerating amid loose monetary policies
in the developed world.The lessening
of a number of macroeconomic risks
has served to support their upward
trajectory.Waning pessimism for the
emerging markets over much of the
past three months has also led to an
improvement in global equity market
sentiment. Nonetheless, emerging markets
have lagged the broader index, further
impacted by the political instability in
Ukraine in the nal days of February and
into March. Developed equity markets
were the bene ciaries of this unease as
the economic recovery in the US, UK
and Europe continued to gain ground.
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
Outlook remains one of slow
and prolonged recovery
Emergingmarkets
have lagged the
broader index
Nick Mustoe
T
he three months to the end of
February saw positive returns for
high-yield bonds; with prices rising and
yield spreads – over core government
bonds, such as gilts – tightening. Returns
have been modestly positive across the
bond market over this period.While the
US Federal Reserve began tapering in
January, and is set to continue this process
throughout the year, this change was
well agged. Economic data in the major
developed markets has been generally
positive, indicating rising growth and
modest in ationary pressures. Importantly,
business con dence data for the eurozone
has pointed to a strengthening in GDP
growth from the very modest levels
we have seen in recent quarters.This
improvement has extended to peripheral
economies such as Spain.Against this
backdrop, there has been strong demand
for high-yield bonds as investors have
continued to value the comparatively high
income available in this market.After a
record year for high-yield issuance in 2013,
supply has begun 2014 at a slightly lower
level, but remains strong.According to data
from Merrill Lynch, European high-yield
bonds achieved a total return of 2.4% (in
sterling terms) over the three months to
the end of February.The aggregate yield of
the market fell 48 basis points, to 4.66%.
By comparison, sterling investment-grade
corporate bonds returned 1.8% over the
same period and gilts returned 1.0%.
INVESCO PERPETUAL
Corporate Bond
Eurozone business confidence data
points to stronger GDP growth
Returnshavebeen
modestlypositive
across thebondmarket
Paul Read and Paul Causer
F
ebruary’s rally in the FTSEAll-Share
Index restored the previous positive
trend.This rally was due to an amelioration
of the concerns regarding emerging
markets and some positive news on the
UK economy. For instance, the Bank of
England raised its forecast for 2014
UK GDP growth to 3.4% from 2.8%.
Looking back over the past year, the
breadth of sectors that participated
in the progress made is noteworthy.
While previous rallies have been driven
by a relatively small number of sectors,
notably mining and banks, the strong
performances from a broad range of
sectors last year can be seen as a sign of
widespread demand for the UK equity
asset class. Over the coming year, we
believe the main question relevant to the
outlook for the UK stock market relates
to how a market driven by quantitative
easing can transition to one driven by the
strength of the underlying economy.
With stock valuations 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 12 months. Our current
preference is to focus on companies which
can deliver attractive cash ows, earnings
and dividend growth.A portfolio of such
stocks may deliver an attractive positive
return over the longer term.
INVESCO PERPETUAL
Invesco Perpetual Managed
Strategic Managed / UK Equity,
Income Distribution, UK High Income
Past year’s market performance
unlikely to be repeated in 2014
Previous rallies have
beendrivenby a small
number of sectors
Neil Woodford
All information correct as at 31 March 2014
