Tiller investor update: March 2019


March was a good month for holders of long-dated UK bonds. The benchmark ten-year yield on UK government bonds fell from 1.3% to 1% over the month. The inverse relationship between yields and prices meant bond prices increased.

This helped both our UK government bond holdings and our UK corporate bonds.

Similar moves were seen in the US government bond market, suggesting this was not just a UK specific issue.

At the end of March, the US yield curve temporarily inverted. This means the yield on ten-year government bonds fell below the yield on two-year bonds. It is a closely watched indicator as historically it has occurred when global growth is slowing and preceded a recession.

However, it was only inverted intra-day i.e. it didn’t end the trading day that way. Whether that represents as strong a signal of recession remains to be seen.

Within global stock markets, the US and European (ex UK) markets performed well. US tech stocks, as represented by the Nasdaq 100, had a particularly strong month.

In the UK, we saw medium and small companies lag the large caps – partly due to sterling weakness.

The first quarter of 2019 has seen global stock markets rally. US and UK stock indices are up by double-digit percentages, including the domestic UK plays.

This move has been largely driven by multiple expansion. In other words, earnings expectations have not risen by much, but the price investors will pay relative to these future earnings has risen. This is a consistent pattern with what we have witnessed in recent years, with multiple expansion being a feature of looser central bank policy.

In 2018 the reverse happened. The Fed tightened policy by raising rates and carrying out quantitative tightening (the reverse of QE).

With stubbornly low inflation giving the Fed a reason to hold off rate rises; this is supportive for equities in the short term and has been balancing out the concerns investors have over global growth and its impact on earnings.



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