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Which way for Investments?

8th September 2014

There are conflicting signals for Equities. On the negative side, troubles in the Middle East and Ukraine are inevitably causing nervousness.

On the positive side, confidence in the economic recovery remains strong. Furthermore, the FTSE Index of the leading 100 UK shares is approaching the record level of 6,930 which was achieved in December 1999. Almost 15 years later, there is a good possibility of a “bounce” if a new record is achieved and the Index passes the 7,000 point.

Our investment clients know that we are not influenced by opinions and predictions of so-called experts.

Our use of “trigger points” provides a worthwhile element of protection if and when investment sectors suffer a downturn.

If the FTSE does break through 7,000 points, investors can enjoy the upsurge. When the inevitable downturn occurs, all of our investors have given permission to switch into cautious funds as an investment Index falls through one of the trigger points.

Property may also be entering a more difficult phase after 18 months of rising prices.

There are signs of a slowdown in London.

The proposed Mansion Tax and penal rates of Stamp Duty may inhibit activity at the top end of the market. With interest rates expected to start rising in the next 6 months, mortgage costs are bound to increase which may deter movers from taking on a larger mortgage.

Whilst a property crash is unlikely, it would be unrealistic to hope that the favourable conditions that have pertained since early 2013 will continue. On the other hand, the Property Funds which feature in Cambrian WRAP portfolios invest in commercial premises.

It was reported on 5 September that there has been a considerable reduction in the number of empty retail premises. If the economic recovery continues, the impact on commercial property is likely to be beneficial.

The Bank base rate has remained unchanged at 0.5% since March 2009.

Whilst the European Central Bank has recently reduced its base rate in order to encourage economic activity, it is widely believed that an increase in the Bank of England base rate will occur in late 2014/early 2015.

Apparently two members of the Monetary Policy Committee (which sets the base rate for the Bank of England) voted in favour of a rate increase at their most recent meeting.

Whether better interest rates are offered to savers as a result remains to be seen. Banks and Building Societies have offered derisory rates to savers who have taken advantage of the increased annual limit of £15,000 for Cash ISAs. Will they act as disreputably when interest rates start to rise?

It is interesting to note that income yields from investments are still quite good. Investors in a WRAP income portfolio can still expect about 4% (more or less depending on their investment attitude and whether they are using a tax-free ISA or a taxable OEIC).

Such a decent yield has remained fairly constant for more than 5 years and our Investment Committee strives to ensure that yields from an income portfolio continue to exceed the interest that can be earned from a savings account.

Any investment portfolio, however cautious, will inevitably experience a degree of volatility. Nevertheless, income investors can also be optimistic that some capital growth may be achieved, particularly if they are prepared to adopt a long term perspective of 5 years or more.

For advice on these matters or any other investment issues, please contact your adviser or their PA.