3rd Quarter of 2014

So far 2014 has seen moderate returns, which have been supported mainly by central banks’ actions - a dominant theme that affected markets worldwide has been continuation of ultra loose monetary policies in developed economies. US Federal Reserve (Fed), European Central Bank (ECB) and Bank of Japan (BoJ) are still keeping their benchmark interest rates at historically low levels in order to revitalise economies. In the US economic results in general have been progressing, whereas Europe is struggling - the Eurozone is currently stuck in the worst economic period since it’s being. Another underlying theme is rising geopolitical and economic instability around the world - events like Ukrainian crisis and sanctions towards Russia, wars in Iraq and Palestine, Portuguese bank stress, Italy being back in recession, Argentinian default. However not all markets have been affected in the same way throughout this period, Asia and emerging markets have seen a good growth this year after being out of favour in 2013. Gold which is traditionally seen as safe heaven assets started to pick up again after a sharp drop last year.

So even though developed equity returns are nowhere close the ones in 2013, we are still witnessing rising markets, in fact of the 25 bull markets of the last 100 years, this is the fourth longest running since 1929. Throughout this quarter some of the equity indexes have reached high levels, e.g. S&P 500 closed above the 2000 mark for the first time and Topix Index climbed to a six-year high as exporters rose with the yen trading near its lowest level against the dollar since 2008.

A summary of world markets returns for the quarter: MSCI World +0.8%; MSCI Europe -0.2%; S&P 500 +1.1%; MSCI UK -0.9%; MSCI Japan +5.8%; MSCI EM IMI +0.7%; Barclays Global Aggregate -3.1%.

Going forward according to the latest indications, we can expect an inevitable rise in interest rates, first in the US and UK around spring 2015, then in Europe. This would mean bonds as an asset class will be less attractive. Moreover, over the course of the next year it is reasonable to expect some correction in equity markets too, so exposure to equity markets should be reconsidered. The market situation where the two major traditional asset classes are out of favour at the same time is fairly unusual, and this is where an active asset management style comes in place and it is vital to look for acquisition of alternative investments.