The first half of 2014 has been a period of calm in domestic and global stock markets. On the whole equity markets have been in a remarkably tight range year to date. The end results for June 30th do hide an occasionally volatile performance but the results show that, overall, equity markets have refused to be moved around, by either extreme optimism or pessimism for any period of time.

The lack of decisive commitment by investors has characterised 2014 so far with investors being wary of committing to one specific particular view. From time to time there have been aggressive moves away from the winners of the last two years, smaller companies or expensively valued “growth” stocks, but the overall pattern of action has been an ebb and flow into and out of certain themes and sectors. As we move into the summer it’s likely we will see a period of sideways trading before investors return from their breaks keen to take a view on a particular outcome on 2014.

In strict economic terms, solace has been drawn from the various Purchasing Managers’ Index (PMI) surveys showing that the United States is rebounding after a severe winter. Europe has seen modest expansion, Japan continues to pick-up whilst China continues to flat-line at reduced levels of activity. Overall, the composite global PMI has scored its highest total since the start of 2011. We believe there is room for further growth in economies and this movement will be the key to the next upwards move in markets. Domestically, and soon all eyes will be on the forthcoming UK election, we anticipate the growth in the economy will slowly be appreciated by investors and, in the absence of external shocks, we believe the various UK main equity indices will make progress. We may finally see the long-anticipated pick-up in corporate capital expenditure, a powerful tail-wind to aid further economic growth in the UK. The positive influence of the new Governor of the Bank of England, Mark Carney, cannot be under-estimated. Despite the harsh media criticism received at times for his stance on interest rates, we feel that the optimism and energy he has brought to policy announcements should not be demeaned and stands at a welcome contrast to the somewhat negative announcements of recent years.

Clearly interest rates can go only one way in the UK but how long they stay at the current level is the key question. We believe Mark Carney will attempt to ensure the Monetary Policy Committee (MPC) can keep rates unchanged for as long as can be. The keenness to inject further life back into the UK economy has been the hallmark of his strategy so far. Mr Carney remains aware of the shadow of the banking crisis of 2008 and the destructive influence this has had on economic activity and consumer and investor psychology. As with the end of long-anticipated move up in interest rates in America, we believe that the timing of the next move in interest rates in the UK is further away than many people have assumed during the last quarter of 2013 and the early part of 2014. We also wish to reiterate our view that, given the very low levels of inflation being recorded in the developed world and the ongoing low level of defaults by bond issuers of all guises, both Government debt and corporate credit markets could remain buoyant for far longer than investors have assumed possible. A final point stemming from the extraordinary recent, and sustained, period of low interest rates remains the investment attractions of the ongoing high yields available on a wide variety of equities and funds. These yields stand at an appealing premium to the rate of interest savers are obtaining from cash deposits. In such circumstances equities remain a powerful magnet for many potential investors.

Special mention can be made of the nascent stock market recovery in the emerging markets, where after a number of disappointments in recent years, selective markets have shown an improvement. The marked divergence in returns of the emerging markets versus western markets, and a number of other assets, has been striking but may finally be coming to an end. If so, the duration and extent of the recovery could lead to some surprises and is a key area for the rest of 2014 and beyond.

We welcome the opportunity to re-iterate our belief in the power of the recovery in the equity market and that our key themes remain in place, centring on recovering consumer confidence, improved investor appetite for risk, the rise in consumption in the emerging markets, the benefits of technology to drive sales for consumer use and enhancing business efficiency, the recovery in global industrial production and exploiting the higher growth rates of the emerging markets with a recognition that the equity markets in each region retain their long term growth appeal.

In conclusion, we believe it is correct to look through the turbulence in the daily news headlines and look at overall performance. All our recent conversations and meetings with both Chief Executives and fund managers have taken note of activity amongst their own business or individual fund holdings and has found these indicators to be resilient. Special note can be made of the fact that it is encouraging to see in the recent backdrop, many of our core fund holdings have seen their managers use this as an opportunity to switch between stocks, exploiting valuation inconsistencies, and adding to existing holdings where prices have moved to more attractive levels.

The Federal Reserve in America remains on a gradual tightening path and this will continue to dominate headlines. For the rest of 2014, a not-too-hot and not-too-cold economy may prove just right for investors all-important perceptions of America and China, and for markets overall. Investors will anticipate further structural reform in key developing economies such as India and Brazil while investments in countries where more comprehensive reforms have been made, should reward investors. We are constantly monitoring the balance of the portfolios between exposures to companies which benefit from the recovering western economies, companies experiencing demand from the emerging markets and, the “domestic” emerging market exposed funds. This will be one of the main keys to the rest of 2014 and is a priority for us as we look to identify any future winners in the next move by equity investors.