Welcome to our April update, reviewing the performance of the markets, our suggested portfolios and keeping you informed of progress.

For more information on our current services and investment opportunities, you can visit our website or contact your advisor.

March was another good month as the global equity markets continue to rally. This rally added an extra 6.5% to the FTSE 100 and assisted the FTSE in achieving its highest point since the collapse of Lehman brothers. Since the offset of the year “Greece” has been the word on every investor’s lips. This heavily indebted country has been close to defaulting on its staggering debt. During February, the European Union (EU) worked hard to try and devise a rescue package to help this struggling nation. Due to political pressure and hard stance by the German Chancellor Angela Merkel, the EU formulated an emergency rescue package alongside the Washington-based International Monetary Fund (IMF). This settled investors’ nerves across the financial sector and helped to push global markets to new highs. The interesting aspect of this whole ordeal is that Greece may never need a bailout and should actually be able to pay back their debts; however, having this rescue system in place should allow Greece to refinance their debts at lower interest rates.

Another important factor was that the House of Representatives finally passed Barack Obama's ten-year, $940bn healthcare reform bill. This bill aims to give coverage to an additional 30 million of the poorest people in America and, most importantly, it prevents insurance companies defining health insurance for pre-existing conditions. This healthcare overhaul will no doubt go down in US history as one of the most important pieces of legislation ever signed. It will be predominantly funded by an increase in taxation across the most affluent members of society. The uncertainty surrounding the bill had caused the healthcare sector to underperform, so when it was finally signed by Barack Obama, the sector rallied strongly.

This month all portfolios produced positive returns inline with expectations. The most profitable funds were those with long-only equity positions in the US market, such as Premier Global DSR, First State Global Opportunities and Neptune US Opportunities. These funds had a double benefit, as the rise in equity markets boosted their overall value and the decline in the pound against the dollar added further profitability to the funds. The pound is currently trading at its lowest levels against the dollar in 10 months and the current uncertainty surrounding the general election should help maintain the pound around this level for some time.

The recent poor performance the Octopus Absolute Return fund has been on our minds. This fund is now 11% down from its recent highs and has failed to produce positive returns since January during which time the wider investment markets have all achieved healthy returns. David Crawford (the fund manager) believes that the market is currently overvalued and he sees more downside potential than upside. David has positioned the fund to benefit in the event of a fall back in equities, which from the current level is certainly a reasonable expectation.

Therefore, we see this fund as somewhat of an insurance policy against downward movements in the markets. We are constantly monitoring progress, but for the timebeing our confidence in the manager remains strong.

As always, Sterling is continually monitoring the market and investment marketplace, searching for potential ways to improve our investment portfolios. At this current time we are taking a deep review of strategies and funds, moving into the second quarter of the year.

Whose budget would be best for the country ?

The 2010 budget, aptly named “securing the recovery,” was the Labour government’s last attempt to persuade voters to give them another 5 years in power. With most headlines focusing on the UK’s massive debt, the various rating agencies are suggesting that Britain could lose its prized triple AAA credit rating. The Conservative party has already stated that if they win the election they will put forward their own budget designed to reduce the debt within the first 50 days. This begs the question: “is cutting the deficit the main priority?”

The Conservatives would argue that the current level of debt is unacceptable; especially considering that, by 2014, approximately 10% of all taxation will be spent on covering the interest payments on the national debt. At this level it would seriously challenge the UK’s prospect of growth and the rating agency may consider this a cut off point for the UK’s triple AAA rating. Therefore, the Conservatives deem this their main priority if they get into power. They would achieve this reduction by a series of spending cuts across the public sector.

Conversely, Alistair Darling argues that reducing government spending could seriously harm the economic recovery and could cause a double dip recession. Interestingly enough government spending has a strong, positive effect on the economy, not only providing jobs and services but also each pound the government spends goes through the economic system many times; hence, generating more wealth than the nominal investment.

The debt vs. spending argument has been raging for weeks in the House of Commons and there are plenty of experts that would gladly back either side of the coin. Reducing the size of the deficit is important, however, reducing government spending at this point in the recovery could have unforeseen consequences. We currently hold the view that it is highly unlikely that the UK would lose its triple AAA credit rating, since the government holds a large equity stake in large financial institutions, such as Lloyds, Northern Rock and the Royal Bank of Scotland. Once these banks become profitable again, they will be sold back to the public for a nice profit. The money from these transactions will almost certainly be used to pay off the national debt.