By Willem Vinke
December saw equity markets fall sharply in the first half of the month as lower oil prices were somewhat perversely, viewed as a negative influence. In addition, nagging concerns about the timing of the inevitable rate increases in the US and an unexpected election called in Greece, conspired to undermine confidence.
The release of the last statement of the year from the Federal Reserve referred to “patience” which reassured investors sufficiently to start the traditional year-end rally – thus in the seasonally thin markets, prices recovered the bulk of losses suffered in the first half of the month. It is likely that the reopening of markets in January will see those concerns referred to above resurface. Bond yields continue to decline, particularly in Europe where it is widely expected that the European Central Bank (ECB) will embark on a programme of quantitative easing in 2015. The USD however remained strong in anticipation of the diverging paths of transatlantic interest rates.
The Fund recorded a small loss on the month but comfortably outperformed its benchmark index to complete a very satisfactory year. The portfolio was little changed in December, the most significant transaction being the sale of the Fund’s holding in Neopost, where the company reported weaker than expected sales and revised its forecasts for the coming period downwards. The Fund’s outperformance was largely the result of its relative lack of exposure to the heavily weighted financial sector.
Turning to stock specific news where Smith and Nephew responded to fresh rumours of an imminent takeover by an American competitor; Sage posted sharp gains following encouraging results; and Dixons Carphone continued to benefit from the expected synergies of the recent merger and growing evidence of accelerating consumer spending.
The year ahead will no doubt provide its share of surprises, the impending elections in Greece and the UK, tensions in the West’s relations with Russia and the progress of China’s economic growth are obvious potential flashpoints. However, the backdrop of abnormally low interest rates means that equity valuations, particularly in those companies with visible and high quality earnings streams, remain underpinned. Whilst the Investment Adviser presupposes that the coming year could be similar to the last, their view is that it is unlikely that the very low levels of volatility seen in 2014 will be repeated.
Commentary provided by Lofoten Asset Management in their capacity as Investment Adviser to the Fund as of 08/01/15.