Welcome to our March 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.

During February the global markets managed to regain some of the initial losses experienced during January and the FTSE 100 gained 3.77%. The main reason behind this upward movement was George Papandreou (Greek Prime Minister) promise to cut the Greek budget deficit from 12.7% of gross domestic product to 8.7% this year by introducing a series of measures, including public sector pay freezes and higher taxes on alcohol and petrol. His positive rhetoric seems to have calmed down the markets and helped the financial sector rally strongly during the month.

The Bank of England decided not to increase its quantitative easing (QE) program past £200bn, preferring a ‘wait and see’ approach. The Monetary Policy Committee members felt the 0.1% increase in fourth quarter GDP signaled enough of a recovery to temporarily halt QE. Furthermore, the high levels of unemployment, the tightening of fiscal spending and slower than expected recovery will, in our view, require the Bank of England to keep interest rates low for a prolonged period.

As mentioned last month, the disappointing fourth quarter economic growth figures were released, showing the UK economy had grown by 0.1%; nevertheless the initial estimate is only based around 40-50% of known information. When this information was finally collected from the Office of National Statistics, they raised the estimated growth to 0.3%, which is more in line with economists’ expectations. Furthermore, across the pond, growth figures for the US economy were also revised upwards from 5.7% to 5.9%, which gave the global markets a boost.

The Absolute portfolio produced successful returns of 0.04% over the duration of the month. However, we were disappointed with the performance of Tim Russell’s Cazenove - UK Absolute Target fund, which produced negative returns of just over 2%. The volatility of this fund is being monitored closely to ensure it meets with our investment criteria for this Portfolio.

The Cautious, Balanced and Adventure portfolios all benefited from the recovery in the Neptune US opportunities managed by Felix Wintle , which successfully produced returns of 8.4%. This exceptional performance was due to a decline in the strength of the pound and a strong rally in the S&P 500.

Our latest editions to our flagship Cautious portfolio (the Artemis Strategic Asset and SWIP property fund) generated 4.46% and 1.05% respectively. This has helped to add additional growth to our previous portfolio of 0.8% and we are confident that this change in strategy will continue to add value throughout the year.

The long-only international equity portfolio, our Adventure portfolio, regained losses it experienced during January and produced positive returns of 4%, making it our top performing portfolio for the month.

Overall, this month we are extremely pleased with the results, as all the fund suggested successfully out-performed their corresponding benchmarks.

When will interest rates rise?

In 1997 when Gordon Brown the then Chancellor of the Exchequer, depoliticised the setting of interest rates and handed over control to the bank of England, the aim was to keep inflation at a 2% target. Interest rates are changed to control the rate of inflation by controlling the supply of money. If the economy is overheating, interest rates will be raised and conversely if the economy is in a recessionary period, interest rates are lowered.

Interest rates in the UK are at the lowest they have ever been. Moving forward the question is not so much when will interest rates be raised, but when will inflation return? There are two main schools of thought on the causes of inflationary pressure inside an economy: The first is that inflation is always a monetary issue and many leading economists favour this idea. If this idea is true, then inflation is not that far away, as the “quantitative easing” pumped £200 billion of newly created money into the economy. With more money in the economy, the purchasing power of each pound is reduced; so as the economy recovers, it is logical to assume that inflation will start to increase, forcing the Bank of England to raise interest accordingly, with the aim to slow down this expansion.

The second school of thought is that some economists believe that until high levels of unemployment and spare capacity in the economy is utilised, inflation is a thing of the past and there is no immediate concern. This view suggests that the Bank of England will keep interest rates at unusually low levels for the foreseeable future. A Reuter’s poll of economists predicted a rise to 0.75% in the fourth quarter (Oct to Dec 2010), and then to 1.25% in the first three months of 2011, reaching 1.75% by June 2011.

As always - we will have to wait and see!