Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a484679

UK: a first quarter review of markets and funds

Amid a string of threats to world markets, the FTSE clung onto some minor gains in the first quarter. We reveal which funds weathered the storm best.

 
UK: a first quarter review of markets and funds

Amid a string of threats to world markets, the FTSE clung onto some minor gains and funds in the first quarter. We reveal which funds weathered the storm best.

This is the fourth of our series of first quarter reviews. You can also read our review of Asia Pacific, the USA and European markets. Tomorrow we will look at commodities.

Economy and markets overview

Nobody expected economic growth in the last three months of 2010 to be quite so bad. The 0.5% contraction, blamed largely on the impact of bad weather, set the tone for the months ahead: concerns over stagflation gained momentum; a rate rise looked too risky despite rising inflation; and the government was forced to use the March Budget to supplement its programme of spending cuts with something more closely resembling a plan for growth.

Even before the news on the economy, Brits were contending with the VAT hike to 20% that came into effect at the start of the year – not good for the crucial consumer spending needed to drive the economy forward. This rise coincided with a sharp decline in consumer confidence, which remained weak throughout the first quarter of the year.

Prominent in investors and economists’ minds though has been rising inflation and how we deal with it. Prices have steadily risen and the consumer prices measure of inflation (CPI) now stands at 4.4%. The UK is facing the same conundrum as most of the rest of the world: how to bring down inflation while keeping the economy alive.

The first line of defence against the corrosive effects of rising prices is an interest rate hike. Against a background of fierce debate – can the feeble economy handle a rate rise? – the Bank of England’s has so far resisted calls to unsheathe this weapon. The Bank’s monetary policy committee meets this week, but despite increasingly diverging views among its members, it is expected to again leave rates on hold at 0.5%. It will probably maintain this status quo until its August meeting, economists say. In the meantime, Capital spreads say: ‘The crunch of the BOE will come at the end of this month when we get the first release of Q1 GDP where expectations are for growth of 0.8%.’ Think tank Niesr estimates 0.7% GDP growth in the first quarter.

The Bank’s ability to raise rates depends on the strength of the economy. Tuesday brought some good news with unexpectedly strong data for Britain’s key services sector. However, this is balanced against other less upbeat surveys for the same industry, as well as evidence that the manufacturing sector could be losing its momentum.

The fragility of the UK economy has taken its toll on markets, conspiring with events around the globe to put the wind up investors. Unrest in the Middle East and North Africa – and subsequent oil price rises – the initial wave of fear that spread from Japan’s crisis, and the re-emergence of fears over the eurozone’s peripheral members all spooked investors. However, helped by signs that the world’s biggest two economies are looking upbeat, the FTSE 100 managed to finish the quarter with a slight rise to 5,908. The pound fell to a five-month low against the euro towards the end of the quarter, in part as investors took a punt on the European Central Bank raising rates before the Bank of England.

How investment funds fared

Investors in UK-focused funds in the first quarter of 2011 had a pretty good run considering the scale and number of ‘black swan' events. These would usually trigger dashes for safety when investors pull cash from riskier investments like volatile small companies and put it into the larger stable ones.

However, this rule of thumb was not entirely reliable as our review found that small companies have suffered the least from exotic economic shocks while medium sized companies fared the worst.

The benchmarks against which investors can measure the performance of their fund managers are the  FTSE 100 which returned 1.44% over the period we looked at: 31 December 2010 to 30 March 2011 - the FTSE 250 which increased by 1% and the Hoare Govett Small Cap index, which tracks the share prices of UK smaller companies,  returned 2.64%.

Using these as the baselines for performance, only the managers of smaller company funds have beaten their benchmark, returning an average of 2.66% over the period. The UK All Companies sector average was less impressive with managers returning an average of 0.97%.

Sign in / register to view full article on one page

6 comments so far. Why not have your say?

Cognoscenti 36

Apr 07, 2011 at 09:47

Re the t1ps Smaller Companies Growth Fund I have the 1/1/2011 price at 166.75p and the 1/4/2011 price at 190.65p. When I was at school this used to give a percentage increase of 14.33% which makes the fund top dog again as it has been over three years.

report this

Broomtree

Apr 07, 2011 at 20:55

Frustrating that the t1ps funds are not accepted on HL platform, I was offered both at launch but was unable to purchase them!

report this

mark senior

Apr 07, 2011 at 21:21

I have all three t1ps funds in my HL isa and Sipp. Can't remember if i did it by online or if I had to phone.

report this

Suze Jamieson

Apr 09, 2011 at 12:57

I have one t1ps fund with HL, but had to phone to get it.

report this

Broomtree

Apr 09, 2011 at 13:44

Thanks folks will try by phone because they are certainly not available on line or listed in the funds research

report this

michael bishop

Apr 09, 2011 at 20:53

Ref HL site - when looking for T1ps funds - Select: 'Share Funds' in their directory and the T1ps will appear online.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Henderson Global Investors: 2014 looks set to be another strong year for UK commercial property


Andrew Friend, acting co-manager*, and Marcus Langlands Pearse, co-manager of the Henderson UK Property Unit Trust (HUKPUT), provide an overview of the key risks and opportunities for the UK commercial property market.

More about this:

Look up the funds

  • Close Beacon Investment
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Unicorn UK Smaller Companies A Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • SF t1ps Smaller Companies Growth
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Investec UK Smaller Companies A Acc Net
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • CF Amati UK Smaller Companies A Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • FF & P Small Cap UK Equity
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Unicorn UK Income A Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Cavendish Opportunities Retail
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Marlborough UK Micro Cap Growth
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Standard Life Inv UK Smaller Companies Ret Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • BlackRock UK Dynamic Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • CIS Sustainable Leaders Trust
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Newton Income GBP Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • Lincat Group PLC (LCT.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Education Development International PLC (EDD.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Pearson PLC (PSON.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Giles Hargreave
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Harry Nimmo
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Christopher Metcalfe
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Michael Fox
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Mark Lyttleton
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet