2nd February 2015
John Chatfield-Roberts, Manager of the Elite Rated Jupiter Merlin Balanced fund
In the past year the oil price has plummeted by 50%*, bond yields have plumbed new depths and the dollar has soared. John Chatfield Roberts, fund manager of the Jupiter Merlin Balanced fund, believes that these are the major themes in 2015. In the following FundCalibre Q&A, we discuss with the Elite Rated manager the ramifications of these important movements.
What is the impact for US and UK economies of the depressed oil price?
The second half of 2014 has been eerily familiar to those who remember 1985/86 when the oil price fell two-thirds and the dollar was climbing. From a Western point of view, for a world economy still suffering the after effects of the Great Financial Crisis (GFC), cheaper oil for an extended period should be a significant fillip. Meanwhile, the dollar has steadily strengthened, particularly against the euro, though against the yen and sterling too.
How does that dollar strength affect global currencies?
The world’s trade is conducted in dollars. A stronger dollar should mean imports (from countries with no dollar peg) to the US become cheaper thereby giving American consumers more “bang for their buck”. Exporters from Europe, in particular, have gained a price advantage, whilst US firms may find their overseas markets more challenging. Emerging markets with currencies pegged to the dollar may be wishing for dollar weakness as their exports become less competitive. Others with unpegged currencies who have borrowed in dollars may wish they hadn’t. However, most trends tend to overshoot, as demonstrated in March 1985 when the strong dollar momentarily reached parity intraday with sterling, as well as peaking against the deutsche mark and yen.
Is there long-term value in bonds?
The other major story for the second half of 2014 has been the relentless fall in government bond yields, something which at the start of 2014 we did not consider likely. At the end of 2014, government bond yields almost beggared belief, but in fact have continued to fall since. Ten-year gilts were yielding 1.75%, 10-year US Treasuries 2.17%, 10-year German government bonds 0.54% and Japanese 10-year bonds just 0.31%.*
The question we continually ask ourselves is whether there is any long-term value in such low returns. The answer at present is resoundingly ‘No’, though that doesn’t stop yields falling further in the short term.
What is your view on equities?
Looking to the future, we believe that for serious long-term investors, where the key aim is to maintain and increase purchasing power over a significant time period, equities are a friend.
We continue to prefer fund managers who invest in well-run businesses whose results are not overly influenced by the economic cycle. Tortoises rather than hares are our preferred animal, and investment not speculation is what we try to engage in.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. John's views are his own and do not constitute financial advice.