Let's be honest, it's been a pretty dire start to the year. 
It's been cold, most of north England has been flooded and is now covered in snow. On top of that, investors have been hit by some substantial and rather nasty market falls.
This week has been somewhat different though, with the FTSE 100 now slightly above the 6,000 level having started the week around 5,900. On top of that, negative rates in Japan will certainly give the bulls some further respite.
However, the UK market is still down 5 per cent in price terms as of yesterday. Also, equities have been so unpredictable over recent months that few are expecting a serious rally from here. Those that put money into the market in late November can always dream though....
As a result, this week the FE Trustnet team has largely stayed away from market movements and instead focused on data driven articles and the odd exclusive interview.
Here we highlight a selection of our favourite stories of the past seven days.
From all of us on the editorial team, have a lovely weekend!
Income investors must be cautious in this “difficult” market, warns Mark Barnett
We start off with senior reporter Daniel Lanyon’s exclusive interview with Invesco Perpetual head of UK equities Mark Barnett.
Barnett has been relatively bearish on markets for some time now, but he told Lanyon about the potential difficulties UK equity income investors face given the likelihood of some dividend cuts over the next year or so.
Barnett says the recent turmoil in China has brought about a strong realisation that many companies in the FTSE 100 are being hit by a strong bout of deflationary pressure.
This coupled with a lack of earnings growth is a mounting problem for their potential pay outs, he warns.
“The reason many companies are struggling to grow earnings is lack of top line growth and part of that is due to pricing. When you break down earnings it is volume and price and if price is negative or zero it is tough to grow your top line,” Barnett said.
UK market’s dividend history
Source: Canaccord Genuity Quest
“So if you ally that with the fact that earnings growth will remain difficult and given the environment we are in: there is earnings disappointment around the corner.”
“Also, a number of areas have been conspiring to make equities look less attractive – partly valuation and partly levels of earnings growth which is linked to valuations.”
The top performing GARS alternative that’s yielding 4%
This article was also written by Lanyon.
By looking through our traffic, we can see that stories about Standard Life Investments Global Absolute Return Strategies (GARS) are a firm favourite. However, within the comments section, it seems more and more of our readers are looking for other options in the absolute return space.
One of those gaining traction is Aviva Investors Multi Strategy Target Income, largely thanks to its management team and current yield of 4.3 per cent.
In the article, Lanyon looked under the bonnet of the portfolio, checked to see how it stacked up to GARS and spoke to the experts about how it may fit into a portfolio.
“This fund offers a truly diversified return profile to traditional asset classes, part of which is a smoothed income stream,” Steve Lennon, investment manager at Parmenion, said.
The UK funds that have never given you a shock
Next up is a data-led article put together by reporter Lauren Mason where she honed in on the funds that have never exposed their investors to an almighty shock.
In the piece, Mason trawled through FE Analytics to see which UK funds have consistently posted better than average maximum drawdowns over the longer term.
According to our data, only two funds in the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors have achieved a second or first quartile maximum drawdown in each of the last 10 calendar years.
In IA UK All Companies, Invesco Perpetual UK Strategic Income (which is run by Mark Barnett) was the only fund to achieve an above-average maximum drawdown on an annualised basis, finding itself in the top quartile every year with the exception of 2008.
Over in the IA UK Equity Income sector, FE Alpha Manager Francis Brooke’s Troy Trojan Income fund is the only open-ended investment vehicle to achieve an above-average maximum drawdown each year over the last decade.
The small-cap equity income funds topping the sector for volatility as well as returns
It was all about the data again in this article, which was cannily put together by FE Trustnet’s head honcho Gary Jackson.
There is, of course, the common view that small-caps are more risky than blue-chips over the long term, albeit while offering the potential for significantly higher returns. Indeed, over the past 20 years, the FTSE Small Cap index has made a 262.66 per cent total return while the FTSE 100 has risen 210.15 per cent.
However, this trend seems to have changed over recent years – as Jackson pointed out.
Looking at both indices over the past three full years, you can see UK small-caps have been less volatile than their larger peers. FE Analytics shows that the FTSE Small Cap’s annualised volatility was just 7.97 per cent over this period, compared with the FTSE 100’s 11.52 per cent.
This has come during a period of stark outperformance from the smaller companies. While the FTSE Small Cap has surged 27.62 per cent over the past three years – thanks to renewed confidence in the UK economy – concerns over the longevity of the bull market and fears of slowing global growth have caused the FTSE 100 to post a total return of just 4.80 per cent.
The following table shows the members of the IA UK Equity Income sector that are sitting in the first quartile for both total return and annualised volatility.
Source: FE Analytics
