THE INVESTOR CENTRE
THE INVESTOR
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29
T
he FTSEAll-World index gained 1.66%
in sterling terms (total return) over
July.The backdrop was dominated by falls
in commodity prices, worries about the
market in China, speculation about US
interest rates and the Greek debt drama.
The US market outperformed in sterling
terms and the dollar was strong against
most major currencies. July’s economic
data releases were mixed, but investors’
focus seemed to be on the Federal Reserve
and the timing of rate hikes.
The FTSEAll-World index lost 5.62% in
sterling terms (total return) inAugust.The
backdrop was dominated by dramatic falls
in the Chinese stock market, worries about
commodity prices, speculation about US
interest rates and the wrapping up of Greek
debt negotiations.Volatility levels remained
elevated over the rst two weeks of
September, with concerns over slowing
global growth and speculation around the
outcome of September’s Federal Reserve
Open Market Committee decision around
US interest rates.The European recovery
continued to gain momentum but emerging
markets continued to be hit by concerns
over China and falling commodity prices.
T
he quarter witnessed bouts of high
volatility as the Greek debt crisis
threatened the eurozone, while increasing
signs of China’s slowdown led to sharp falls
in global equities, all against the backdrop of
a potential rise in US interest rates this year.
The UK is similarly looking to raise bank
rates from the record low 0.5%, with the
Bank of England (BoE) striving to balance
continued disin ationary risks against a
strong domestic economy that expanded by
0.7% in the second quarter.‘Super
Thursday’ (6August) saw the BoE for the
rst time publish its Monetary Policy
Committee (MPC) minutes concurrently
with its interest rate decision and quarterly
In ation Report. BoE governor Mark
Carney commented that the likely timing of
the rst bank rate increase was drawing
closer, although the exact timing is
data-dependent.The recent market volatility
may have complicated the decision on
whether to hike this year. Falling in ation,
including a brief lapse into de ation, has
been a striking development in the UK over
the past year.The forecast for near-term
in ation remains muted, depressed by low
energy prices, although the MPC expects
in ation to pick up over the medium term.
CPI in ation recorded 0.1% in the year to
July, while core in ation rose faster than
expected to 1.2% and RPI in ation held at
1.0% for a third month.
The fund has generally been positioned
in line with the benchmark over the period.
Nimish Patel and Eleanor de Freitas
BLACKROCK
Core manager: Global Equity
The potential upside is growing
momentum for the European recovery
BLACKROCK
Index Linked Gilts
Market volatility may delay any
UK rate rise this year
Positive gains in July
havebeenhit by
avolatileAugust
Short-termUK in ation
will bemuted, rising in
themediumterm
Francis Rayner
D
uring the third quarter, stock markets
have fallen and investor risk aversion has
increased, following a deterioration in the
outlook for economic growth in China and
fears that this will lead to a wider slowdown
in global economic growth. For oil and other
commodities, these concerns are occurring
against a backdrop of an expansion in supply,
leading to weaker oil and commodity prices.
Our focus on stock selection has added
value during this period of uncertainty, with
high-quality franchises exposed to structural
growth outperforming, such as Next and
RELX (formerly Reed Elsevier). Next
reported growth from its online directory
business, with revenue and pro t growth
beating most other UK retailers, while RELX
reported consistent sales growth. Lower oil
prices meant that the fund’s relatively low
exposure to oil and mining companies was
bene cial, while easyJet, a bene ciary of
lower fuel costs, raised pro t forecasts
following strong passenger demand.
Recent detractors to performance have
included Shire, which fell after the company
made a hostile $30 billion bid for US rare
disease specialist Baxalta, and Johnson
Matthey, where part of its business is exposed
to customers in the oil and gas industry.
Economic activity in the US and the UK
suggests positive growth, while eurozone
economic activity shows improvement.We
remain constructive on UK equities and
highlight the ability of driven active
management to deliver investment returns.
BLACKROCK
UK & General Progressive
Focus on high-quality franchises,
including Next and RELX
Investorsmore
risk averse due to
market turmoil
Luke Chappell
