The US Federal Reserve’s cautious signal gave a boost to safe haven assets like gold

The FTSE 100 index of top stocks nudged above its record high yesterday, as a rush for precious metals propped up shares in London-listed mining companies.

Gold and silver, seen as safe haven assets, began to surge on Wednesday night after the US Federal Reserve struck a cautious note about economic growth.

Traders pointed to the Fed’s so-called dot plot, which showed that members of the central bank’s rate-setting panel expect a gentler pace of rate rises in the coming years. This can be read as a sign the world’s biggest economy will recover more slowly than expected, despite the Fed hinting that it will start to increase rates later this year.

“[T]he Federal Reserve suggested a less aggressive timeline for raising interest rates even as it opened the door for the first hike in almost a decade,” said David Papier, market analyst at ETX Capital.

This caution was echoed by Bank of England official Andy Haldane, who said a cut to interest rates was just as likely as an increase.

Gold spot prices were up 0.4pc to $1,172 an ounce by yesterday evening, building on gains made after the Fed statement. Silver prices rose 1.3pc to $16.16 an ounce.

The FTSE 100 index of blue-chip shares briefly touched a fresh intra-day high of 6,982.79 during morning trading, breaking a record set on March 2. The index then closed the day 17.12 points higher at 6,962.32, which beat the March 5 close. Until a month ago, the record level had been untouched since December 1999.

Martin Badder went to meet Neil for a question and answer session about The CF Woodford Equity Income Fund. Here’s the latest fund round-up:

Last year’s challenges remained largely intact during the first month of 2015 with markets continuing to focus on falling energy prices and geopolitical tensions. The further decline in the price of crude oil set the tone for a volatile month, weighing on energy-related stocks and causing concern about the health of the global economy.

In the second half of the month, attention switched towards Europe following the Greek election of the far-left radical party, Syriza, which is committed to ending years of painful austerity. This potentially heralds a period of further political and economic uncertainty in Europe, where several other nations have seen populist parties gaining traction at the expense of more mainstream politics and substantially increases the risk of a Greek sovereign bond default. Elsewhere in Europe, Switzerland’s central bank unexpectedly ditched its peg to the euro, leading to an immediate and substantial surge in the value of the Swiss franc.

The eurozone is now in outright deflation and whilst many economists expect inflation rates to remain negative only temporarily, we are not so convinced. The threat of an entrenched deflationary mindset engulfing the eurozone appears significant enough to have finally convinced the Germans to reluctantly support a European Central Bank (ECB) programme of Quantitative Easing (QE). In turn, sovereign bond yields continued to decline, with UK 10 year Gilt yields falling to new lows towards the end of the month. 10 year Gilts are now yielding well below 2.0%, the proportion of UK stocks yielding more than Gilts has never been higher.

Athough this is a clear indication of the income attractions of the equity asset class, it is worth bearing in mind the reasons why bond yields are so low before becoming too enthusiastic. The bond market is evidently worried about the health of the global economy. Ultra-low sovereign bond yields reflect growing concern about the ‘Japanification’ of the western world, Europe in particular. In turn this would imply an extremely challenging trading environment for many businesses, and suggests investors need to be as selective as ever and focused on dividend sustainability, rather than headline yield alone.

One of the most dependable sources of dividend income for the equity investor is the tobacco sector, which features prominently in the portfolio. Over the last 25 years, the tobacco sector has an unsurpassed track record of delivering superior long-term total returns1 based on attractive starting yields and consistent, sustainable dividend growth. In January, our tobacco holdings performed very robustly, with significant contributions from Imperial Tobacco, British American Tobacco and Reynolds American, the latter assisted further by the strength of the dollar versus sterling.

Pharmaceuticals also performed well, with positive contributions from GlaxoSmithKline, AstraZeneca, Sanofi and a number of our smaller biotech positions. US biotech firm Alkermes was particularly strong, after two of its drugs – designed to treat clinical depression and schizophrenia – produced positive results in clinical trials. We view these positive trial results as potentially very significant developments and further evidence of the strength of Alkermes’ pipeline.

Allied Minds and IP Group also performed well – both specialise in the commercialisation of intellectual property and help to nurture early-stage businesses through to commercial success. The market is steadily warming to the long-term growth potential that exists within these businesses.

The largest detractor from performance was Drax, which continued to suffer from the government’s announcement in December that it is consulting on changes to its stance towards the support of biomass conversion projects. Although this is frustrating and disappointing, we remain convinced of the long-term investment case, given the quality of its management team, low valuation and the clear economic advantage of biomass compared to other sources of renewable energy. Drax’s shares recovered somewhat towards the end of the month after the European Union approved UK government support for a competitor’s biomass power station. We progressively added to our holding throughout the month.

Another significant detractor was Game Digital. The video games retailer issued a profit warning during the month, pointing to fierce competition during the Christmas period. This was disappointing, but one poor trading update does not undermine what we see as a strong long-term investment case. The shares fell immediately and sharply after the warning and we took advantage of this by materially adding to our holding at what we believe to be very attractive valuation levels.
We initiated a new position in P2P Global Investments during the month by participating in its C share issue. The company invests in online peer-to-peer lending credit assets and its proprietary technology system allows it to seek out the highest quality loans from a wide variety of platforms. The company looks well-placed to deliver a consistently attractive income stream to its investors.

We also added a new unquoted position to the portfolio during January. Novabiotics is a biotechnology company with two lead products in clinical trials: Novexatin is a topical (brush on) nail fungus treatment in Phase II trials partnered with Taro Pharmaceuticals; Lynovex is a treatment for Cystic Fibrosis also in Phase II trials. We believe Novabiotics is another great example of an exciting and innovative early-stage British business, based on excellent science and strong intellectual property, which offers the prospect of significant long-term growth should it fulfil its potential.

Elsewhere, we added active investment fund Crystal Amber to the portfolio during the month. This is a company that we have known well for a long time and we are very supportive of its investment approach which aims to deliver long-term value through active engagement with the companies in which it has invested. We hold its management team in very high regard.

We also added to a number of other existing positions including Spire Healthcare in an attractively discounted share placing, Utilitywise into share price weakness, Babcock International where a site visit helped to further build our conviction in the long-term investment case, and Centrica & SSE as further political interference caused renewed share price weakness in the energy utility sector.

We sold out of our position in Gagfah, the German real estate business during the month. Having received a bid from larger competitor Deutsche Annington in December, we took the opportunity to sell our holding. Another company subject to recent bid speculation is Smith & Nephew, which we also sold with its shares trading near all-time highs. Clearly, if a bid were to materialise, it could lift the share price higher still but we believe other opportunities now offer greater long-term income potential.

Source: Bloomberg

Woodford Funds ‏@WoodfordFunds 

Great interactive session with some key intermediaries today, including @Andy_Skerritts @MartinAccrue & @ParmenionUK

We are delighted to announce that Martin Badder has joined Accrue as a senior Investment Manager. Martin brings with him ten years experience in the industry, having previously worked for Rowan Dartington.

This year the government is planning to spend about £720bn – just over £32,500 per UK household.

Because there is more money going out of the Treasury than coming in, from tax, there is a deficit. The Treasury is about £5,000 short per household.

About a third of government spending goes on welfare and pensions – about £10,000 per household.

That will not be touched in today’s Spending Review.

The second biggest cost is health, about £6,200 per household, then education, which costs each household almost £4,500 a year.

Debt interest payments cost us all an average of £2,300 a year.

The NHS and schools in England are both protected from budget cuts – meaning other departments will have to take a bigger hit in the Spending Review.

With the UK Government still borrowing a staggering £1bn every three days to fund its spending deficit, political debate has been moving towards the idea of taxing the wealthiest of the population in order to stem the deficit. Ideas emerging from the Lib Dem conference include a so called ‘mansion tax’, whereby anyone owning a house over £1m in value will be subject to an annual 1% tax on its value. Politicians from all sides appear to be more receptive to this idea than, certainly, they were a year ago and the idea seems to be gaining momentum.
At the other end of the spectrum an idea put forward in the New Statesman by Peter Tatchell is that of a one-off graduated 20 per cent wealth tax on the richest 10 per cent of the population. This, it is argued, would raise £800bn. The article claims that the wealthiest 10 per cent of the population have combined personal assets totalling £4,000,000,000,000, so making the once-only 20 per cent tax on their immense wealth affordable. Mr Tatchell claims that it is in their self-interest to pay this tax because if we slip into a new depression they will lose much more than 20 per cent of their wealth.
Whilst I am all in favour of everyone paying their fair share of tax, I think that an examination of UK tax receipts is most illuminating. The top 1%, who earn £156,000 or above, will pay 24.2% of all income tax this year, on their 10.8% share of all income. The top 10% of all earners, on at least £50,500 will pay 55.3% of all income tax.
However, the most revealing figure is that for the very wealthy; the top 31,000 tax payers, who make £500,000 or more, pay £14.8bn in income tax. This exceeds the £13.9bn paid by the 13.6m taxpayers on £20,000 or less.
It does not take a genius to work out what would happen if ever higher taxes lead to an exodus of the very wealthy from these shores.

The Spanish economy is already in dire straits and any further deterioration would leave those UK companies with significant Spanish exposure facing severe problems. The list below highlights seven companies and the percentage revenue from Spain in their last results.

Northgate 36%
National Express 25%
Hornby 14%
Yell 13%
IAG 13%
Vodafone 11%
Colt 10%

Furthermore, at the time of writing Barclays was the most exposed of the UK banks in terms of retail lending, through its Bamco Zarogozana subsidiary.

• Travel company Go Ahead could be a beneficiary of the Olympic pound. Go Ahead’s operations are located primarily in the south-east of England and the company has around 21pc of the London bus market.
• Investors should consider pub company Greene King. Many sport fans will watch the events at local pubs. This is good news for the pub sector and great news for Greene King.
• Whitbread, owner of Premier Inn, the value-hotel operator is perfectly positioned to benefit from the increased numbers in London.
• Halfords, Britain’s leading bike retailer, could see an increase in demand if Team GB can repeat the success of the Beijing games the company.
• For many the Olympics will be an excuse to have a huge party, with the big beneficiaries being the high street supermarkets. Consider buying Tesco or Morrison’s.
• Betting will increase during the competition and online sports betting company Betfair is poised to benefit.

Markets have had a very good run since their autumn closing low, showing gains of 20%. European bank bonds , the Vix index of expected US equity volatility and short term Italian and Spanish government bonds are all back to where they stood in July, before the eurozone crisis intensified.

But is it all business as usual? Clearly these returns over the last few months are unsustainable; they merely reverse the losses made during the panic of last summer. Gains could continue, albeit not so dramatic, if all the artificially cheap money flooding Europe had actually been used to fix its underlying problems. Sadly it has not. The reality is that what caused Europe’s problems has not been addressed and its cure has merely been delayed.

I was surprised to note the recent resurgence in the buy-to-let market, which had plunged dramatically in the aftermath of 2007. On first inspection, buying a property with a finance charge of 5%, whilst receiving 6% income on it seemed to be a lot of hassle for little reward.

However, a closer look at the maths reveals why it still holds an appeal for many investors trying to eke out an income from their capital.

Say you borrow £100,000 from your bank at 5%, buy a property for £150,000 and then rent it out for a yield of 6%. You would receive £9,000 of rental income per annum, or £4,000 net of finance costs. This is equivalent to an 8% return on your £50,000 investment.

Granted there are other costs, such as repairs and management fees, but it still provides a decent cash return. With interest rates set to remain low for some time and renting becoming more popular buy-to-let could provide a decent way to diversify your investment portfolio.