So the daffodils are out, the clocks have gone forward, the ISAs are done and the tax year finishing – it must be the quarter end - and thus a suitable time to have a look back at what happened to the various asset classes over the last three months.

In the UK it has been the more domestically oriented FTSE Mid 250 that has set the pace with 12% growth this year, as against a more modest 6.2% from its more senior brother the FTSE 100. Perhaps this is a reflection of the amount of M&A activity we have seen in the FTSE 250 index which in turn has pushed some frothy valuations, as speculative investors attempt to guess and chase the next takeover target. It will be interesting to see if this growth is sustainable into the next quarter and if there may already be signs that it could be slowing.

Over in the US despite the blather and bluster of the markets and the air of optimism over economic growth, the Dow Jones Industrials and the S&P 500 could only manage 2.6% and 2.7% respectively in Sterling terms, although the NASDAQ was a little better at 5.1%, reflecting the increased level of interest by investors in telecommunications and some tech stocks. Although the last quarter’s figures from corporates weren’t disappointing, there is still concern over where the future growth is to come from. With interest rates still rising, the concern is likely to remain.

With riots in Paris, German doctors on strike and the political pantomime that is the Italian election season, you would think that the Eurozone markets would have reflected much of this internal bickering but in fact far from it. The French CAC40 was up 12.2% and the German DAX 11.9% (both in Sterling terms) and, as with the US markets, British investors have benefited from a weaker Pound to inflate their returns slightly further. The dull performers in Europe and, of course, not in the Eurozone, were the Swiss – well what do you expect? The interesting issue for the Swiss market was a comparison with the first quarter last year, when they achieved just over 10% and outperformed the other leading continental indices.

The main Japanese indices the Topix and Nikkei 225 also showed significantly lower returns than a year ago but still a positive gain of 4% and 5.1% respectively. Compared to the amount of coverage that the Japanese recovery has had, you would have thought that it would had been more dynamic but it is worth remembering that the Nikkei has come some way from its nadir of below 8,000 points back in 2003. The Topix tends not to get the proper coverage, which is somewhat misleading as it is a far more relevant index rather than the Nikkei, some of whose constituents date back to a bygone pre-WW2 era, and are rarely adjusted.

The star equity markets of the past few years have been the emerging markets and last year there were some astonishing gains in Gulf and Middle Eastern markets as well as Russia, where the IRTS rose by 104.3%. It is of course worth reminding ourselves that not all emerging indices have been successful. The Chinese Shanghai B index was one of the worst – probably in direct proportion to the amount of hyperbole it received by way of media coverage. This year, though, some of the confidence seems to be showing cracks, with concerns over pricing and political stability in some quarters. The Gulf markets took a nasty shake a couple of weeks ago and that followed the falls in Iceland which reverberated elsewhere around the globe. However, all has not been gloom, as Brazil’s Bovespa achieved 21.4% in the first quarter (but only 13.4% in local currency) and Russia 26.2% and investors seem confident enough to ignore some of the worries, especially the changing political hues in Latin America.

In the Fixed Interest markets, however, we have seen some retreats with the Citigroup World Government Bond Index falling by 1% in the first quarter and the FT-A All Stocks down by 1.9%. Only the Emerging Market bond index had a small rise of 0.6% - following a 25% gain for the whole of 2005. On the other hand this has meant a rise in yields, helping those investing for income. This is going to be a crucial area to watch over the next few months with concern over the weaker bond countries and a careful watch for the turning point in the US treasury yield.

In terms of the other asset classes, Gold has been the star performer with a rise of 11.7%, which compared very favourably with the GSCI commodities index (dominated by oil / energy) which fell by -2.4%. The IPD UK property index was up a little but overtaken by the fashion fad of the moment, Private Equity, with the hedge fund indices showing some rather uninspired growth which probably reflects the lack of volatility which can be so beneficial for them.

So as ever when reviewing asset classes over a time, it has been the “curate’s egg” – good in parts; yet another good reminder for us to be diversified. The key issues for next quarter may well be dominated by the interest rate questions in the major economies to see if we are to move into the next phase of this cycle.

And finally…. Extending the brand is a fine art for confectioners. Examples have been ice cream Mars Bars and other sickly variations, but news has arrived of an enterprising Viennese chocolatier who has expanded our universe of chocolate experiences to a new level. Johann Georg Hochleitner has linked up with a camel farm in the United Arab Emirates to produce the world’s first camel milk chocolate. Apparently it is lower in fat but sweeter in taste. The brand Al Nassma, which I understand means “Cool Wind” (not an especially appetising title) will be on sale later this year in the Middle East and the bars will be available in Europe next year. That would be one hump or two, sir?

If I may crave your indulgence for one other “and finally”, I was delighted to read of the enlightened attitude being put forward for regulatory enforcement in the Tanzanian financial services industry. It is reported in The Citizen newspaper in Tanzania that a legislator was proposing that “spanking should be added in the list of punishments to deal with investors who are not abiding by the laid down laws”.  For some this might be considered to be more of an incentive?  I understand that some City stockbrokers are already considering opening up a branch office in Dar es Salaam.

Have a good weekend,

Justin A. Urquhart Stewart

Director

Seven Investment Management, a division of Killik & Co

P.S. For further details on the latest 7IM Market Return Figures, please go to www.7im.co.uk and look for the heading ‘Research’ displayed on our homepage.