We assess the contrarian view against a background of unremitting gloom.
Europe’s initial rescue plan for Ireland gave rise to a brief relief rally for stocks and the Euro but was short lived as the familiar fears of contagion to the other beleaguered Euro zone countries of Portugal, Spain and Italy were stoked by continued negative sentiment in the media and conflicting messages from European politicians and policymakers.

Unfortunately the old adage does not always ring true
Early in 2010 we identified the UK property market as one which potentially offered some compelling shorter term investment opportunity. Historic low interest rates, collapsing property valuations and a growing need for higher yield began to put property back “in play”. Our cautious outlook for low risk fixed income return rekindled our appetite in this market area. We therefore re-entered this sector after a significant absence! However, we now believe it is once again a time to withdraw our commitment for clients to this sector and have outlined our reasons below.

The Implications for International Investment
We all read the headlines throughout the summer; “The Dollar is going to reach parity with the Euro”. Pundits and investors alike agreed, the debt situation in the euro zones peripheral nations was unsustainable and a collapse of the European ‘experiment’ was a distinct possibility. The Dollar rallied nearly twenty percent in the first half of the year briefly surpassing 1.20 against the Euro (the first time in four years).

With the Japanese Yen at 15 year highs is it time to revisit Japan?
You may recall our successful foray into Japanese equities in September last year which turned a profit for many Investors. We believe that a similar short term opportunity may be presenting itself now and are seeking to recommit investors, albeit for different reasons. Japanese equities have good defensive qualities in the current global environment but there are other factors which we believe are positive for Japan. We touch on three factors which form part of our case for investing now.

As Gilt Yields Fall to Historic Lows we ask “has a bubble is formed in the Sovereign Debt Markets?”
Each piece of positive economic data released seems to be followed by two negative ones leaving financial analysts and investors scratching their heads as to the underlying health of any economic recovery and thus the direction of financial markets. As a consequence equity market volatility has risen even though markets remain range-bound, moving higher or lower depending upon last news or data release. Indeed having scaled recent heights of 5,800 and plumbed the depths of 4,900, the FTSE 100 index is now only just above where it started for the year. One asset class that has benefitted from this uncertainty however has been the Government Bond Markets, both in the UK and overseas. Herein, we discuss why, and should, investors now be wary of that market.

With Gold reaching historic Highs we investigate methods of investment.
The spot price of Gold has surged over the last few years as demand for the precious metal has risen. Demand has not only increased from traditional sources (the Jewellery and industrial sectors) but from investors drawn to the metal for its perceived ‘safe haven’ appeal during times of economic turmoil, hedge against the US dollar and inflation and on a pure speculative basis. These and a positive supply dynamic (less gold is mined than demanded each year – the difference typically made up by central bank selling) has contributed to the gold price moving from $255 an ounce ten years ago to $1,245 today.

Should Governments be cutting budget deficits or stimulating the economy?
First we had the “PIGS” followed by “PIIGS”, then as Hungary announced that they could suffer from a Greek-style credit crisis (a claim that appears to be more about political scare mongering than fact) we had the “PHIIGS”; will it soon be all the weak economies and be “Supercalifragilisticexpialidocious”? A difficult question to answer but one which is causing much of the volatility we are experiencing in the global financial markets. With such uncertainty and no long-term confidence as to whether we are in a rising or falling market, the direction appears dictated by the latest news or data released on a day by day basis. .

Not this year?.
The Greek debt crisis is unfolding with predictable contagion to the Stock and Bond markets of the other three horsemen which we highlighted in our February Investment Note “Spain, Greece, Italy and Portugal – The Four Horsemen of the Apocalypse?”. The uncertainty has now spread to global stock markets and the familiar headline currently doing the rounds is “Sell in May and go away”, the full version of which adds “stay away till St. Leger Day”.

Could the Greek crisis threaten the euro zone?
A wave of risk aversion is, in the short term, sweeping the global financial markets, sparked by further concerns over the viability of a European aid package to the Greek Government. Fears that the issues in Greece may spill over to the rest of Europe’s debt-ridden countries, has weakened the Euro and threatens to derail a still fragile global economic recovery.

Consistency and Transparency.
Over the recent months, IOAM has been striving to refresh its portfolio offering to increase the transparency of our products and enhance information delivery, in line with the regulatory principles related to “Treating Customers Fairly”. This has resulted in a review of our existing portfolio type names, benchmarks and quarterly fact sheets which, we believe, enhances information delivery to ensure that product and portfolio offerings are clear, concise and more readily understandable. These changes are set out in detail below.

One year of feast and seven of famine?
Throughout 2008, we held overweight positions in UK Government Debt (or “Gilts”) for our sterling based clients – it was the only safe haven in a ferociously volatile market. However, our June 2009 Investment Note, “Gilts Face Mounting Headwinds”, highlighted some of the issues which we thought would create obstacles for Gilts during the remainder of the year and into 2010. Record low interest rates and substantial quantitative easing efforts (which could not last forever) led us to conclude that Gilts, at that point even, were showing signs that they had run their course.

Sovereign debt issues throughout Europe are hindering markets.
Global equity markets started the year well, initially posting solid gains and moving stronger. However despite a better than expected fourth-quarter earnings season, risk-aversion has returned pushing markets back into negative territory for the year driven most prominently by the sovereign debt issues that are now befalling the southern states of Europe.

A year of Specific Opportunities
"Bull Markets climb walls of worry but we must not ignore the obstacles still ahead"-Phillip Hadley, IOAM Managing Director.
We believe that 2010 will offer strong opportunities for those able to navigate the obstacles ahead and has the potential to be another rewarding year for investors.

Were we right or were we wrong?
We would like to take this opportunity to review our ad hoc Investment Notes presented in 2009 and critically assess whether we were right or wrong, where appropriate.
We give a summary below of each note, together with our views on how accurate we believe the note turned out to be and the bearing each had on our portfolio positioning.We would like to start with a reminder of our “Outlook for 2009” document below which was published in January 2009. We will leave it you to judge how accurate the predictions on this first page were.

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