So how has the investment world fared in my year off?

Kate Rogers looks at how the sector has changed in her year of maternity leave

Kate Rogers
Kate Rogers

I will soon return to my desk at Schroders, having had a wonderful 12 months of maternity leave. I'm experiencing all sorts of emotions, but the one I will focus on in this column is nervousness.

I've been reading the financial papers and listening to the news, but I've not been following the investment markets as closely as usual. I feel like an alien, returning from the world of all things baby, about to land back in the investment world. So I'm trying to get up to date. Perhaps my 'cheat sheet' might be helpful to you.

The investment world that I left behind a year ago was one with low expectations for the future. Interest rates were low and growth was not expected to be very exciting, either in economic or equity market terms. The austerity hangover after the debt-fuelled party was expected to put a damper on any recovery.

However, despite this caution, 2013 has been a good year for equity markets in general. There have been only two months of negative returns - June and August. The UK equity market (FTSE All Share) has generated a total return of almost 20 per cent and the US and Japan are up nearly 30 per cent in total return terms. In the US, the Dow Jones Industrial Average Index has reached all-time highs, even after the 16-day government shutdown. Recovery is the new buzzword, and it seems as if I'm returning to a more optimistic mood.

So what has and hasn't changed in 2013? Interest rates have remained very low, at 0.5 per cent in the UK and 0.25 per cent in Europe and the US. Inflation has been less of an issue than many commentators predicted, with UK CPI below 3 per cent a year. The combination of low interest rates and benign inflation has provided a good environment for a recovery in demand. And the data suggests that this recovery is indeed happening. The world economy is experiencing gradual growth as loose monetary policy boosts demand and fiscal headwinds fade. The good economic data has been driven by manufacturing and, in the US and UK, reviving housing markets. Governments in the US and the UK continue to provide stimulus in the form of quantitative easing and housing market support. Europe overall is out of recession, but peripheral Europe still faces considerable headwinds and the continued de-leveraging of banks poses a challenge to any sustained recovery. The US is certainly leading the way, which will probably mean that it will be the first to raise interest rates, benefiting the dollar.

In contrast, the emerging markets are fading as a growth engine. They too will benefit from the cyclical recovery, but previous support from demographics, falling interest rates and a weak US dollar is waning and will reverse.

As charity investors, you are probably a little better off than you were at the end of 2012, and might be feeling more relaxed about the prospects for your investments. Equities have done well, but valuations are still reasonable - particularly if you believe in the global growth prospects - and are still giving you a better income than government bonds or cash. There are still challenges, particularly for charities with cash in the bank. Do you continue to watch your wealth depreciate in real terms, or do you invest now, after such strong equity market returns?

I am looking forward to being back at my desk in the world of the investment markets. Perhaps I should feel excited, not nervous. I certainly feel grateful for having spent such a lovely year at home with my family and thank my colleagues and clients for their support in allowing me to do so.

Kate Rogers is client director at Schroders

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