Risk aversion returns

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Mitchell Fraser-Jones 16 May 2014 Est. reading: 1 min read

With the UK stock market close to all-time highs, perhaps we shouldn’t be too surprised to have seen a slightly more risk averse attitude creeping back into markets over the last few days. The cited cause of this slight pullback, however, is something of a surprise. News that the European economy was weaker than expected in the first few months of 2014 should not come as a shock. We can see no reason to anticipate a sustained pick-up in economic activity in Europe any time soon. The eurozone is still grappling with the threat of deflation and substantial entrenched imbalances as outlined in David McWilliams’ insight article here.

But price behaviour in recent months would suggest that the market had started to believe that Europe’s problems were a thing of the past! For example, as the chart below demonstrates, Ireland’s 10 year financing costs recently fell below the UK’s for the first time in several years.

Being long term investors, we have no idea what to expect from the market over the next few weeks but there are certainly reasons to be cautious. We will invest accordingly. Nevertheless, over more sensible time horizons we are confident that the right portfolio can deliver attractive long-term returns to investors.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

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