December 2014 Update
Property continues to perform well, while bonds outperform equities
Following a mid-month wobble, UK equities ended the month only slightly lower. The initial downturn was the result of some familiar themes, particularly falling oil prices and concerns within the financial sector.
Banks had suffered from worries about ‘stress tests’ by the Bank of England to determine the levels of capital they should hold and the riskiness of their assets. In the end, most of the banks passed, leading to a relief rally. The sector had also been affected by events in Russia. As the Russian currency continued to tumble, those financial institutions with the most direct links to the country lost ground.
Russia’s troubles stem largely from tumbling oil prices, which has also affected the UK stock market. Oil & gas companies were responsible for much of the market’s downside during December. The UK stock market contains a number of large global energy and commodity companies, which has been a factor behind its underperformance over the last year.
However, the latter part of the month brought gains across sectors, with the UK market pulled up on the back of a global rally. This was inspired by comments from the US Federal Reserve (the Fed) that it is not in any hurry to raise interest rates. This helped US stocks to lead the way in December.
Elsewhere, European stocks were dragged down by lacklustre economic data and political concerns. In Greece, investor confidence was depressed by renewed political uncertainty after the government abruptly brought forward the presidential elections.
Bond markets outperformed equities; as the month progressed, a steep decline in the oil price led to worries about the state of the economy, prompting a ‘flight to quality’ as investors bought government bonds in preference to riskier asset classes.
Commercial property enjoyed another positive month, ensuring it claimed the title of the best performing major asset class in 2014. The relentless demand for quality property assets has driven up capital values in key markets. London property is still powering ahead as the engine of growth, although inflated prices are making it difficult for investors to find value in the market. As a result, yields continue to edge downwards and are now at their lowest level since February 2008.
The biggest losses of the month came within commodities. Oil suffered some of the heaviest falls, amid ongoing worries that supply will continue to exceed demand. Analysts have continued to stress that unless supply is stemmed or demand goes up significantly then surpluses will remain for at least the first half of the coming year.
Should I make any changes to my investments?
Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments. Most importantly, you should seek financial advice before making any changes to your investments.
One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes, take a look at our An introduction to diversification in multi-asset funds guide.
Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting find a financial adviser, which is responsible for promoting financial advice in the UK.
All figures quoted are in sterling terms to 31 December 2014 unless otherwise stated.
The information contained in this article has been derived from sources which we consider to be reasonable and appropriate. It may also include our views and expectations, which cannot be taken as fact.
Investment markets and conditions can change rapidly and, as such, the views expressed in this Update should not be taken as statements of fact nor be relied on when making investment decisions. Forecasts are opinions only, can not be guaranteed and should not be relied on when making investment decisions.