The Weekly Wrap: Tesco, UK GDP, Anthony Bolton

So Alanna, let's start with the Retail Sector. Tell us what's been going on.

Alanna Petroff: The Retail Sector was pretty exciting actually this week. We got a lot of numbers out from Tesco, Burberry, Debenhams and Marks & Spencer. So Tesco was really the big news this week. They announced that they would be refocusing on their UK operations, pouring £1 billion into sprucing up their UK stores, hiring thousands of new employees and making their online offerings much better.

Now if you look at the stock graph for Tesco, you see that the shares haven't done very well recently. In January, the shares plummeted because Tesco had its first profit warning in roughly two decades and since then investor sentiment for the shares just hasn't recovered. So at this point, investors are kind of in a wait-and-see position, waiting to see what's going to happen with this £1 billion investment, and whether it's going to make any difference.

Cook: So, if you want to invest, or maybe thinking about getting into Tesco, you really should be taking a long-term approach at this point?

Petroff: Definitely.

Cook: Okay. So let's move on, what about M&A and utility sector?

Petroff: Well, for International Power, that's been an ongoing story because GDF Suez has been trying to take over the company and now it seems like they have succeeded.

Cook: Success?

Petroff: Yeah. So, what we have is, GDF Suez raised its buyout offer to 418 pence per share and the independent directors said ‘yup, that sounds good to us’ and they wiped their hands clean. Now, Morningstar's analyst who covers this, says this is pretty much a done deal. The independent directors said yes, the market seems to be happy with it if you look at the stock, it's hitting a high for the last 52 weeks. So everyone is quite happy. But it's not totally a done deal quite yet, because we're still waiting for shareholder approval and the vote happens mid May. So we'll just have to wait for that--for everything to, well hopefully, go through.

Cook: Okay. So that's a couple of individual stocks, how about the market as a whole?

Petroff: Overall, you would have seen that from January to the end of March, the markets have been doing quite well. We've had a nice rally, that's great. But, for the last few weeks, since then we haven't been doing so well, and in fact Tuesday, April 10th of last week, the markets closed below where they started at the very beginning of January, which is a little bit disheartening for long-term investors.

Now this week, we did quite well. We had a nice 2% pop on Tuesday, and the FTSE was recovering because it had some support from numbers out of the US--Goldman Sachs specifically reported results that were pretty good. And also Spain had a debt auction that was quite healthy, there was strong demand, and people are generally just feeling a little bit better about the eurozone. Not great, but better. Meanwhile, so that's the markets, and let's go on to economic news.

Cook: Okay. So, the main event that we had this week was that we got the minutes from the Monetary Policy Committee Meeting. Essentially, the main thing they show is that there is a slightly more hawkish feeling coming from the Committee. Just one of the nine members is now actually pushing for there to be a change. That's David Miles, he is saying, he is voting in favour of an extra £25 billion to be pumped into the economy. But we are very close to a situation where actually none of the members are voting for change in any way. So interests rate staying at their lows as they have for three years now. Basically I don't think we should be expecting any more Quantitative Easing any time soon.

Petroff: So no more money being pumped into the economy?

Cook: No more money for now, yeah, but you never know. So the next main item is going to actually be coming out next week, that's the preliminary reading of first-quarter GDP here in the UK. So consensus for the first quarter is that it's either going to be a flat performance or potentially a little bit of a contraction, a small minus number. The last three months of 2011, we actually had a 0.3% contraction. So we get a contraction in the fourth quarter of 2011, and if it happens again in the first quarter of 2012, technically that's recession, two consecutive quarters of contraction. However, if it's just 0.1% or it’s 0.2%, I don't think we should be worrying too much, because it's really not much of a change. But there is always potential for a kneejerk reaction on the markets.

Petroff: Okay.

Cook: The final item that I think it's worth mentioning this week is from the fund industry. So Anthony Bolton, veteran manager, bought himself out of retirement two years ago to manage Fidelity China Special Situations; and now this week he has just announced that he is definitely staying to manage that fund for another two years. So at least until April 2014. I caught up with Jackie Beard, she is our Director of Closed-End Fund Research, to ask her what she thinks of this. Let's see what she had to say.

Jackie Beard: Well, our view on Fidelity China Special Sits hasn't changed--we maintain our Neutral rating. And we weren't surprised to see the announcement, to be honest. When we met him at the end of last year he was very clearly bothered by the underperformance and he really wants to make good for his investors. But, ultimately, our ratings are based on a three to five year view of outperformance, and we still have no clarity on who will be running that fund in three to five years time. So really it's very hard to have more than the Neutral rating.

Cook: So that’s a chance for Bolton to redeem himself, because that fund is down 20% since launch.

Petroff: He used to be the ‘go to manager’, so I think maybe he could use some redemption, if that's the case.

Cook: Absolutely.

Petroff: Okay. So, that's the wrap for this week.

Cook: Sure is. Thanks very much for watching. Join us again next week and we'll be covering the main market news.