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Nilgosc


Market Report

Market Report 

The graph below summarises the index returns on the main asset classes/regions for the year to 31 March 2016. Returns are shown in sterling terms and local currency terms.

 

Markets posted mixed returns over the year to 31 March 2016, as the graph above shows. There were large differences in the performance of equities depending on the region. Bonds and property delivered positive returns with UK commercial property performing particularly well.  Further details on the performance of specific asset classes over the period are provided below.

Equities

Despite the UK experiencing sturdy economic growth, the UK equity market returned -3.9% over the period, toward the lower end of the spectrum of regional equities. The market's sizeable resource component exposed the market to falling commodity prices. The best performing sectors were consumer goods (17.5%) and technology (11.9%) while the basic materials (-26.4%) sector was by far the worst performer. Utilities were the best performing sector for world equities, with the oil & gas sector providing the lowest return.
 
The US was the only region to provide a positive return over the period, returning 0.9% in local currency terms. The strong US dollar brought the sterling return up to 4.2%. Continental European equities returned -11.5% in local currency terms whilst sterling weakness in Q1 of 2016 brought the sterling return up to -4.2%.

Japanese equities performed very strongly at the beginning of the period, boosted by domestic equity buying and additional quantitative easing. However, concern over policy effectiveness and the economy reversed this positive sentiment leaving Japanese equities with the lowest local currency return.

Emerging market performance was weak, mainly caused by ongoing uncertainty over China's growth and weak commodity prices.

Bonds

Global government bonds performance was subdued over the 12 month period to the end of March 2016 amid falling interest rates. Longer dated fixed interest government bonds continued to perform better than those with shorter term maturities.

UK fixed gilts returned 3.2% and index-linked gilts returned 1.7%. US Treasuries also performed well.

Globally, most corporate bonds posted slight positive absolute returns. Credit spreads (the difference between the yields on non-government bonds and equivalent maturity government bonds) for global bonds widened over the year. In the UK, corporate bonds returned 0.4% which was less than both fixed and index-linked government bonds. The credit spread for the more secure AAA-rated issues widened the least, resulting in these bonds outperforming lower rated bonds.

Property

UK commercial property performance was strong with returns of 11.7% over the 12 month period. The momentum in UK property seems to be slowing. Performance over the last year was driven predominately by capital growth which continued to be good. Property valuations continued to rise on the back of high transaction activity. Rental growth was also positive, albeit less so than capital growth.

Infrastructure

Infrastructure as an asset class generally performed well over the last 12 months and experienced some strong exits and increases in unrealised valuations. This has primarily been fuelled by a strong demand from direct investors and core infrastructure funds for defensive assets in a low interest rate environment, which has pushed up valuations. Fundraising was very competitive during 2015.