Market Outlook Report – March 2017


Overall, the global economy is looking more normal. Growth in the advanced industrial economies is respectable, inflation is picking up and interest rates are rising. The US has expanded for the past 30 quarters and unemployment remains low. The eurozone has grown for 14 quarters; last quarter’s GDP growth, at 0.4 per cent, meant that growth for the year amounted to 1.7 per cent, just shy of Britain’s figure.
Eurozone GDP Growth

GDP Growth in the Eurozone continued for the 14th consecutive quarter.

Yet the global economy remains in a fragile state and it's recovery is starting from a position of serious fragility. High overall debt levels leave the global economy vulnerable to shocks, whether from a cyclical downturn in a major economy, rising interest rates, or political shocks including economic nationalism.

Reeves IWM is aware of the fragility of the global economy and all of the challenges and uncertainties which might throw the recovery off course. This is why we maintain a widely diversified investment portfolio and retain a prudent cash balance within this balanced approach. A market correction is inevitable following a prolonged rally; it’s just that accurately predicting the timing is extremely difficult. Research has repeatedly shown that trying to beat the market by pre-empting a envisaged market correction is costly and it is better to ride such fluctuations over the medium to long-term and avoid missing the equally unpredictable bounce-back recovery. Such volatility is part of the risk-reward nature of stock market investment, but it can be mitigated by a diversified portfolio (both geographically and sectorally) in well-managed, low-cost funds with consistently strong performance records. This is the approach taken by Reeves IWM.

Following our latest Monthly Investment Meeting, it has been judged appropriate to reduce our exposure to US and UK equities, whilst adding to the gold and oil sectors (via selected Exchange Traded Funds (ETFs), which individually hold positions in gold and oil commodities and trade closely to the underlying commodities’ net asset market value). This will also add diversification to the emerging markets via the Blackrock Frontiers Investment Trust PLC (which is a consistently strong performing investment trust company, that won Best Emerging Markets Investment Trust category in the Money Observer 2015, 2016 and 2017 Investment Company of the Year Awards and the Investment Week 2015 and 2016 Investment Company of the Year Awards).

The table below represents the adjustments we are advising within our Model Portfolios.​ This will result in a temporary increase in cash holdings.




UK Special Situations

- 2.50%

- 5.00%

- 5.00%

US Equities

- 2.50%

- 10.00%

- 5.00%

UK Equity Income

- 2.50%

- 2.50%

- 2.50%


+ 1.00%

+ 1.00%

+ 1.00%


+ 1.00%

 + 1.00%

+ 1.00%

Emerging Markets

+ 5.00%

+ 5.00%

UK Economy

Inflation surged faster than expected in February to 2.3 per cent from 1.9 per cent in January. Rising inflation has sent household confidence into a decline that threatens to drag down the economy, separate surveys have warned. Families are more pessimistic about their finances than at any point in the past three years, with household budgets under as much pressure as they have been since late 2014, according to IHS Markit. Research by the Bank of England, meanwhile, indicates that consumer demand is waning. Both reports blame the deteriorating outlook on the collapse in the pound since Brexit.

UK Inflation Rate

UK Inflation surged faster than expected in February to 2.3 percent.

In recognition of the increasing uncertainty around the foreseeable prospects for the UK economy, we have judged it appropriate to reduce our UK market exposure within our model investment portfolios.

(Last Ever) UK Spring Budget

Key Points

  • Healthcare An extra £2 billion will be spent on social care to ease pressure on the NHS.
  • National insurance Contributions paid by self-employed people earning more than £8,000, will rise from £0.09 to £0.11 in the pound. The move will land 1.2 million basic rate taxpayers with an average tax increase of £205 a year.
  • ​Personal taxes Income tax will become payable at £11,500 in April, up from £11,000.
  • ​Tax-free dividend allowance will be cut from £5,000 to £2,000 — which will affect more than 400,000 pensioners and raise £2.6 billion over five years.
  • Business rates A £435 million relief package
  • Economy Growth this year is forecast by the OBR to reach 2 per cent, up from previous predictions of 1.4 per cent


The eurozone economy is growing at an annualised rate of more than 2 per cent, its fastest for more than six years and faster than the US. Every country in the eurozone economy is growing and the growth is across all sectors. The latest surveys show sharp increases in manufacturing and services activity, order books and business optimism, with French output stronger than Germany for the first time since 2012. Meanwhile job creation is at its strongest in almost a decade and unemployment is down to 9.6 per cent, down a percentage point in a year and its lowest since 2009.

European stock markets face an especially challenging time in 2017. In addition to the continuing turmoil over Britain’s exit from the European Union, there are elections in three European countries where the far right has a chance of winning and creating further disruption, as electors in the Netherlands, France and Germany collectively decide the political fate of Europe.

Our selected European funds have performed very well over the past month. Our clients have benefited from these pleasing returns.​

Performance of our European Smaller Companies Funds (27/03/2017)

  • JPMorgan European Smaller Companies Investment Trust is up 6.57%
  • Schroder European Smaller Companies Z Acc is up 5.12%
  • ​Threadneedle European Smaller Companies Z Inc is up 4.20%
  • ​Lazard European Smaller Companies C Acc is up 1.92%


The US economy has surged since the presidential election in November, with stock markets hitting repeated highs. As markets have soared, so too has inflation. Consequently, the federal open market committee (FOMC), the central bank’s policy-making body, voted nine to one to lift the federal funds rate range by a quarter of a percentage point, to between 0.75 per cent and 1 per cent. The committee’s decision to raise rates, which was widely expected, came after several positive economic reports in recent weeks, including stronger than expected jobs figures in March. The federal funds rate stood at 5.25 per cent when the financial crisis struck. The Fed embarked on a series of cuts in September 2007, reducing the rate to a range of 0 per cent to 0.25 per cent by the end of 2008. The next rise would come seven years later, and the one after that in December last year.

US Interest Rates

The  Federal open market committee (FOMC) voted nine to one to lift the federal fund rates from 0.75% to 1.00%

More fund managers than at any time since 2000 think that equities are overvalued, it found, with a net 34 per cent of respondents saying so. For most of the subsequent period until 2014, the majority thought that shares were undervalued. Most of the concern is confined to the United States, with a net 81 per cent of respondents thinking it is the most overvalued region. Consequently, during our latest Monthly Investment Meeting, we decided to reduce our exposure to the U.S. in our model investment portfolios, following recent US market jitters which have started to have an impact on the value of U.S. funds.

More fund managers than at any time since 2000 think that equities are overvalued.

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What Next?

We are advising multiple changes to our Model portfolios and our Transact clients will receive specific advice e-mails.

In relation to recent feedback, the above document is a shortened version of our Market Outlook. Please click the below button to view the full version.