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Has Trump Made Equity Markets Great Again?


Shifting inflation expectations across the globe are changing the dynamics of equity markets. Since mid-2016, financial markets are adjusting to the prospect of inflation re-emerging, and away from the threat of deflation, a theme which is diminishing.  

The election of Donald Trump as US president has contributed to this change due to the promise of increased fiscal spend and an ambition to restore US GDP growth to 4%. The global equity market has been reacting positively to the changing economic backdrop, whilst fixed income markets have been selling off. However, this move doesn’t tell the full story of what’s been happening within equity markets, and the move from the threat of deflation to the re-emergence of inflation has produced some profound changes within the equity market. The most significant trends are highlighted below along with our view.  


Global equity markets have been positive, rising 8.7% in the fourth Quarter of 2016.
Appian View: A re-emergence of inflation should be positive for equities.  The more difficult question is what type of equities will prosper in this environment.  At Appian, we continue to believe our approach of seeking value in quality companies will perform over time in different economic backdrops.
The US equity market has continued to out-perform the European equity market.
Appian View: The out-performance of the US market, relative to Europe, has taken the relative valuation to the utmost extreme in the last 30 years.  This has occurred at the same time the US dollar has strengthened.  Valuation remains a concern for equity markets, particularly in the US market.  The lack of value in the US is the driving factor behind our underweight position in US equitiesAppian funds continue to trade at valuation discounts to the broader market.
Global bank stocks have emerged as a large beneficiary, rising over 20% in the fourth quarter of 2016
Appian View: The rising bond yield environment has lifted the share prices of banks globally.  The rally has been indiscriminate, affecting US banks and European Banks equally.   Appian Funds were positioned in US banks stocks prior to the recent rally.  The preference for US banks over European banks is maintained at present due to the interest rate cycle being more pronounced in the US, greater signs of improved credit demand and greater capital certainty. 
Defensive sectors have been under-performing
Appian View: Defensive sectors that were acting like bond proxies have under-performed recently as they lack the growth characteristics to perform in an inflationary world.  One of the key tenets of the investment philosophy at Appian is to seek companies which generate profitable growth.  This has resulted in our funds having a zero weighting in utilities and telecoms.  However, not all defensive stocks are equal and this rotation out of defensives has the potential to throw up opportunities in profitable companies that pay solid dividends.  Appian continue to own equities which have dividend yields higher than the broader market.
Cyclical sectors have out-performed
Appian View:  Cyclical sectors are the clear beneficiary of the changing economic backdrop.  The challenge with investing in them is their valuation.  An example of the valuation challenge is CRH, a quality company exposed to the US infrastructure story.  It trades on a P/E of 18 and a DY of 1.8% indicating that a lot of potential upside is already priced into stock.  However, it is  possible to find value with the cyclical space and the funds have benefited from their holdings in miners such as Rio Tinto and Antofagasta.  Cyclical names such as ABB and Akzo Nobel have also been added. 
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The information contained in this material is not financial advice. Nor does it constitute an offer for the purchase or sale of any financial instruments, trading strategy, product or service. No one receiving this material should treat any of its contents as constituting advice. It does not take into account the investment objectives, knowledge, experience or financial situation of any particular person. You should seek advice in the context of your own personal circumstances prior to investing or taking out any product from your own independent adviser.
 
This material has been prepared and issued by Appian Asset Management Limited on the basis of publicly available information, internally developed data and other sources believed to be reliable. While all reasonable care has been given to the preparation of the information, no warranties or representation, express or implied are given or liability accepted by Appian Asset Management Limited or its affiliates or any directors or employees in relation to the accuracy, fairness or completeness of the information contained herein. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. 

If you decide to invest in the Appian Unit Trust, further information in relation to all risks is provided in the Fund Prospectus and supplements. This material is available from Appian Asset Management Limited, 42 Fitzwilliam Place, Dublin 2. If you invest in the Appian Unit Trust, you may lose some or all of the money you invest. The value of your investment may go down as well as up. This investment may be affected by changes in currency rates. 

References to past performance are for illustrative purposes only and are not a reliable guide to future performance. Projected returns are estimates only. Forecasted returns depend on assumptions that involve subjective judgement and on analysis that may or may not be correct. 

The above disclaimer and limitations of liability are applicable to the fullest extent permitted by law, whether in Contract, Statute, Tort (including without limitation, negligence) or otherwise.
 
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Appian Unit Fund Prices  
1 February 2017 
Appian Value Fund 139.5751
Appian Equity Fund 173.4140
Appian Small Companies Opportunities Fund 191.0748
Appian Liquidity Fund 106.1775
Appian Ethical Value Fund 98.3884

For more detailed information on each of our funds click here

Patrick J Lawless
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Frank O’Brien
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Niall Dineen
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