The FTSE 100 is now at 7,423 having started the year at 7,142 and finished June at 7,312. The index returned 5.6% to the end of June, to be set alongside 7.3% for the FTSE World index. Gilt returns have been flat in the same time period and the FTSE Actuaries UK Conventional Gilts All Stocks index has returned only 0.4%
Based both on our research, and on the opinions of fund managers we have recently met, we consider both bonds and equities to be overvalued. Bonds are overvalued to a greater degree, and have more inherent risk of a permanent fall in value. They are currently therefore, not generally, part of our portfolios.
Equities are historically overpriced, but they are generating higher levels of income. Even if there are price falls, we consider that carefully selected high quality equities have more chance of recovery; and of a good total return in the medium to long term. We maintain our focus on UK and global funds which invest in good quality companies with robust financials and which are cash generative.
We also maintain our tactical cash holdings. Cash is paying very little interest, it is, however, important to protect the equity holdings from a forced sale in poor circumstances.