Pride comes before a fall…

Peaks in UK consumer confidence

Both common sense and history would encourage us towards thinking equity investors have a greater chance of strong returns when confidence is low not high. Likewise, unemployment, car sales and house prices… People are still talking about stocks positioned for the recovery, but we are five years on from the last trough in the market. A lot of investors say it is about feel good factor, but in the UK the feel good factor is driven by house prices. There is very little evidence of a sustainable, non-volatile recovery and the more I hear people saying it is inevitable house prices will go up the more I think they look dangerously high. People have such short memories.

Paul Stephany, Newton 

Both common sense and history would encourage us towards thinking equity investors have a greater chance of strong returns when confidence is low not high. Likewise, unemployment, car sales and house prices… People are still talking about stocks positioned for the recovery, but we are five years on from the last trough in the market. A lot of investors say it … read more

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The week that was…

In the week ending 9th October, what stole the financial headlines?

The battle to slow the land gains of the Islamic State in Iraq and Syria continued. With ongoing air strikes from the West and its allies, Islamic fighters advanced apace as they seized a significant portion of the Syrian border town, Kobani. With the US ruling out a ground operation, both the German and UK governments put pressure on Turkey – which borders Kobani – to help the ailing Kurdish town. In the US, the release of the September minutes from the Federal Open Market Committee meeting showed members expressed concerns over the potential negative impact of weaker foreign growth on the US economy.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 10/10/14. ISSG is part of The Bank of New York Mellon.

The battle to slow the land gains of the Islamic State in Iraq and Syria continued. With ongoing air strikes from the West and its allies, Islamic fighters advanced apace as they seized a significant portion of the Syrian border town, Kobani. With the US ruling out a ground operation, both the German and UK governments put pressure on Turkey … read more

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The true cost of shorting

The costs associated with an emerging market long/short strategy can be a constraint on upside capture, which is an added consideration for investors assessing increasing offerings in this space. There is the cost of carry if you short something, the spread in credit default swaps used, the relative interest rates and the cost of carry on shorting FX and even in option volatilities. The thing is, whatever the cost is – and it varies from very small to high – you have to factor it into your total return.

Colm McDonagh, Insight Investment

The costs associated with an emerging market long/short strategy can be a constraint on upside capture, which is an added consideration for investors assessing increasing offerings in this space. There is the cost of carry if you short something, the spread in credit default swaps used, the relative interest rates and the cost of carry on shorting FX and even … read more

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The week that was…

In the week ending 2nd October, what stole the financial headlines?

The battle between the West and Islamic State militants intensified. Backed by a number of Middle Eastern states, the US-led air campaign gained additional backing as both the Australian and Canadian governments pledged military support. Canada’s government has promised CF-18 fighter jets and refuelling and surveillance aircraft. Meanwhile, the anti-Islamic State movement gained further traction as Turkey, thus far reluctant to take a frontline role against the militants, signalled it may send troops into Syria or Iraq and let allies use its air bases. Elsewhere, positive US jobs data raised the possibility of an early interest rate hike by the US Federal Reserve. September’s job report showed the unemployment rate had fallen to 5.9%, its lowest level since August 2008.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 03/10/14. ISSG is part of The Bank of New York Mellon.

The battle between the West and Islamic State militants intensified. Backed by a number of Middle Eastern states, the US-led air campaign gained additional backing as both the Australian and Canadian governments pledged military support. Canada’s government has promised CF-18 fighter jets and refuelling and surveillance aircraft. Meanwhile, the anti-Islamic State movement gained further traction as Turkey, thus far reluctant … read more

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Bond yields: together but apart

10-year government bond yields

Bond investors generally like to ride a trend towards convergence, such as when the spread of Spanish and Italian sovereign debt narrowed sharply relative to German bunds following the eurozone crisis subsiding after the summer of 2012. But divergence trades can also be profitable. We believe the relative performance of the US and European economies has presented such an opportunity.

“Though the official policy stance and rhetoric from both central banks remains “lower for longer”, markets are unconvinced. Benchmark yields on a swathe of European government bonds, from German bunds, to French OATs and Spanish bonos, have been falling to new lows. Five-year US Treasury yields, by contrast, have more than doubled since 2012.

Gareth Colesmith, Insight Investment

Bond investors generally like to ride a trend towards convergence, such as when the spread of Spanish and Italian sovereign debt narrowed sharply relative to German bunds following the eurozone crisis subsiding after the summer of 2012. But divergence trades can also be profitable. We believe the relative performance of the US and European economies has presented such an opportunity. … read more

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