Market Update - March
A bounce back in confidence
The beginning of 2016 has been a volatile period for markets, particularly if you look beyond the headline figures. Since last month’s update risk assets have rebounded strongly, led by the laggards such as Emerging Markets and Commodities. As the oil price has stabilised, investor confidence has improved and entrenched market positions have begun to unwind. Consensus themes throughout last year included a preference for developed markets over emerging, defensive companies over cyclical companies and growth over value. All of these have seen a reversal in fortunes.
Rotation highlights challenges to consensus views
Recent market moves could simply be explained through valuation dispersion, the out of favour companies just got too cheap. But if this marks the beginning of a more fundamental turn in fortunes, market moves suggest that the stabilising of commodity prices have led investors to consider an improving emerging market outlook (less chance of a ‘hard landing’ in China) and the potential re-emergence of inflation. Both of these scenarios being the opposite of perceived wisdom last year.
Implications for portfolios
Our charity investment portfolios have been positioned to benefit from this market rotation, with some exposure to value approaches and a preference for equities over bonds. We continue to believe that volatility will persist, particularly given the political backdrop in the UK and US, and look to take opportunities provided by market oscillations to add value. In this environment we are seeking to balance exposure to the more out of favour assets, likely to be volatile, with more defensive assets, continuing to emphasise diversification within our charity client portfolios.
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