The FTSE 100 is now at 6,826 having started the month of August at 6,724 and started the year at 6,242. This time last year we saw significant market turbulence as China’s currency devaluation and slowing economic growth created sharp falls in global equity markets. Conversely, the month that has just passed saw surprisingly calm equity markets despite the economic and political uncertainty surrounding the UK exit from the European Union and the US presidential election.
We remain cautious however because markets are yet again being driven by central bank measures to provide liquidity as opposed to any improvement in company earnings or other fundamental measures. Concerns surrounding the rate and veracity of Chinese growth and the continued uncertainty surrounding US interest rate increases provide ample reason for caution.
Currency translation effects have continued to be very beneficial for our UK and global investments and we remain alert to the fact that this may not be sustained. It is interesting to view data from another perspective and when the FTSE World index is measured in Euros and US Dollars in the year to date it has a total return of 4% and 7% respectively, compared to 19% in Sterling terms. This is a good illustration of the strength of the currency effects in play.
We retain our conviction that the best way to ride out any volatility and instability is to focus on high quality, cash generative businesses which our carefully chosen active fund managers have not overpaid for when the position in the stock was established. We retain our tilt towards large cap companies, but many of the fund managers we have recently spoken to also have a degree of exposure to robust mid-cap companies which are more attractively valued and include some innovative and dynamic companies with promising long term prospects.