"A pessimist sees difficulty in every opportunity; an optimist sees opportunity in every difficulty" (Winston Churchill) In the four years that I have been writing this monthly update, never has there been a time quite like this. Covid 19 and the repercussions this dreadful pandemic are causing worldwide still remain deeply unsettling and uncertain.
Uncertainty is what markets detest most so deep breath and lets look at the data...
MSCI World -13.5% -21.5%
S&P 500 -12.5% -20.0%
FTSE -13.8% -24.8%
Nikkei -10.5% -20.0%
SSE -4.5% -9.8%
MSCI EM -11.4% -18.6%
And as is the norm when we are in times of crisis, people turn to the USD, giving it some strength., though the Euro and Japanese Yen have held up....data as follows
GBP +3.1% +6.3%
EUR +0.0% +1.4%
JPY -0.7% -1.5%
AUD +6.0% +14.4%
CNY +1.3% +1.6%
So where to start when trying to analyse what has just happened and give some kind of balanced view on what is going to happen moving forward.
Whilst the cause of this Market crash is unprecedented, the way markets are reacting can be compared to similar situations in the past. The last quarter was the second worst in recent history. Prior to that lets look at three of the worst in living memory:
Quarter 4 in 1987 after Black Monday saw 23.5% wiped off of the S&P 500. Buying at the end of that quarter (not the market low point but the end of that bad quarter) would have seen your investment rise by 8% in a year, 15% in three years and 43% in 5 Years
The Financial crisis of 2008 saw a Quarter 4 fall of 19%. Despite seeing further double digit losses in Q1 of 2009, buying a simple tracker at the end of 2008 would have seen your investment grow by 20% in a year, 30% in three years and a whopping 84% in 5 Years.
Even as recent as Quarter 4 in 2018 we saw a "crash" with S&P losing 13%...give it 12 months and the markets are 26% higher so the gains were double the quarter loss.
As Emotion drives markets, this is why they have been oversold and to a certain extent manipulated by traders. Ironically if you look at the performances, its the Shanghai exchange which has only suffered half the losses of the others, perhaps the lack of a true free market is the reason.
So we have had a bloodbath and like any manager / analyst I cannot say for sure if we have seen the bottom of this market or not. However there has definitely been a much calmer few days trading than we were seeing a couple of weeks back.
The VIX measures volatility in the markets. On 16th March, the VIX was 83, which means that on 16th March 2021, the markets could be anywhere between 83% higher or 83% lower. Already the VIX is down to 53, so an apparent fear that existed where all market gains for the last 31 years could be wiped out in 12 months has been firmly put in its irrelevant place. We also trade around 6% higher than the market mid month low.
The effect on the economy around the world is there for us all to see. Unlike 2008 /09 though , Government have the opportunity to be proactive oppose to 2008/09 where they were forced to be reactive.
Media is everywhere and quite frankly in most cases very unhelpful where facts can be so easily distorted and this of course plays into people's decision making.
What is factual though is that company valuations are at their lowest in years. As awful as this pandemic is to those who are affected, the macro situation is that the world's population continues to increase at the same rate is has for the last couple of years, around 170,000 a day.
Of course some sectors of the market are going to be more affected than others, McDonalds will sell less burgers next month than it did in April 2019, which will affect their bottom line /share price. Other industries may actually come out stronger. Regular readers know that Unilever is often my poster child. As a company that sells a lot of soap and we are all washing our hands more, what will that do to their bottom line? What about tech. Two giants here, Microsoft and Amazon have actually increased their share price slightly in a quarter .....makes sense, people online more and logistics around working from home...not to mention Healthcare.....This is where having your investments well managed comes into play.
It is suggested that only about 20% of people make money in the stock market despite over the longer term always seeing an upward trend. This is because despite all the well founded advice that is available about not catching selling on the way down (catching falling knives), buying low, going against the herd mentality, it is still extremely difficult to convince people this works. The 20% are buying now, the 80% want to "wait and see what happens"
Quoting the great Warren Buffet's investment advice, we should all be "Fearful when others are Greedy and Greedy when others are fearful" Certainly in my lifetime I have not seen a situation as fearful as this...so get greedy and get in touch..........
"Fear and Panic are two separate emotions, Fear's healthy, Panic's deadly" (Frosty Hesson)As time goes on, records are always going to be broken and while its nice in recent times to be talking of all time market record highs, 2020 and February in particular have seen some market falls, cumulating in the largest single day drop for the Dow Jones in history last Thursday, over view being....
MSCI World -8.6% -9.2%
S&P 500 -8.4% -8.6%
FTSE -9.7% -12.8%
Nikkei -8.9% -10.6%
SSE -3.2% -5.6%
MSCI EM -3.8% -9.2%
So a sea of red as expected with current Corona Virus sweeping across the world...seemed to help the US Dollar though, data being
GBP +2.9% +3.3%
EUR +0.6% +1.5%
JPY -0.3% -0.8%
AUD +2.7% +7.9%
CNY +0.8% +0.3%
So is this justified, or panic selling? As well as the biggest single day drop in the Dow's history, we also saw the largest weekly fall in the S&P 500 since the market crash of 2008. In more recent times, the last time the panic buttons were being frantically pressed would have been Q4 in 2018, when we saw the S&P fall from 2929 to 2485, a drop of 17.9%. Today this market sits at 2954 so pretty much back where we were, so buying that dip would have served you well as long as you took some profits along the way.
Since the Corona Virus started, S&P is down just over 11%, so still some way before hitting the 17% slump mentioned above.
Whilst I'm not going to say for certain that this market has bottomed out, there are signs that we should get a bounce next week as Friday tried to break even. I don't think we are out of the woods quite yet and one differential between this mini crash and the previous is that especially in my region, I can physically see the impact this is having on the economy, rather than a load of traders just deciding that companies are over valued.
That said, the reports coming out of China suggest that the number of increases in cases already plateaued between 23rd January and 1 February, suggesting their containment measures are working. The number of cases outside of China are still quite small in number and on the ground the response from where I am has looked impressive.
Emotion is still the overriding factor in any market movements and there is a lot of fear out there at the moment. But at these times bear in mind the words of the great Warren Buffet to "be greedy when others are fearful"
As mentioned in last month's blog last time we had anything similar was 2003 with SARS. Back then the virus was contained within 7 months, the markets losing 14% in that period but those losses were quickly reversed and seven months later you would be 20% up
In terms of man's innovation, 2003 literally was generations ago, Facebook hadn't been founded, the Iphone was still four years away. For Ipads and Instagram we would have to wait another seven years. In 2003 it took 20 months to develop a vaccine, whose to say this couldn't be done in a fraction of the time now given how much further forward we are than 17 years ago.
So do I see value in this market, Yes absolutely. Occasionally it takes events like this to bring valuations out of the clouds and in my onion this has happened
The impact on stock markets has pretty much been global. Only a handful of niche markets have remained in positive territory, Estonia , Bahrain and Venezuela being notable exceptions, the latter up a whopping 20%, not that I'm advocating buying Venezuelan stocks..
But Panic is never a strategy. Taking profits out along the way, ensuring some level of diversification is important but so is buying low and right now share prices are generally low.
Interestingly, the Chinese and Emerging markets have not been as affected as the US - though as the Global players trade in the US they are likely to be hardest hit.
The US sets the precedent for other markets around the world. A famous saying being that "When the US sneezes the rest of the world catches a cold" but a more pressing question ..What does the rest of the world catch when China sneezes??? :-)
"An Investment in Knowledge pays the best Interest" (Benjamin Graham)
The first month of the new year / decade comes to an end. The background noise of Brexit and Impeachment is still there but as has been the case, has had very little impact on markets.
But now we have Coronavirus...a world pandemic??...market performances for January..
Jan & YTD
MSCI World -0.7%
S&P 500 -0.2%
MSCI EM -4.5%
And on the currencies, the greenback did the following...
So with the exception of the Aussie Dollar which took a beating, no huge movements.
On the markets though, all had a negative month. To take the football adage it was definitely a "game of two halves" in January. The momentum of 2019 and upward trends carried on for the first half of the month, until a peak on the 17th but these gains were pegged back
The Coronavisrus has definitely had its part to play in the sell offs causing the second half losses. With today's media we are all subjected to so many different "expert" opinions and with China's control over what information reaches the outside world, each person draws their own conclusions on the extent of this pandemic
As I have said 1,000 times markets are emotional places and of course yesterday when the World Health Organisation declared it a "Global Emergency"...words like that cause panic, and panic selling. As the Chinese markets have been closed while they welcome the Year of the Rat, Monday's trading session over there will be interesting.
Of course as with any form of predicting, it is impossible to know exactly what impact this "Global Emergency" will have on the World's Financial Health. Looking at similar situations, the closest in comparison was the SARS outbreak of 2002/ 03. This lasted from November 02 to July 03. From its outbreak until April 2003, Global markets fell 14%, but by the end of the year those 14% losses were turned into 20% gains
Other outbreaks such as Avian Flu (05/06) and Swine Flu 09/10 had little impact on the performance of shares
Managing your finances in these uncertain times is more difficult as its uncertainty which the markets detest.
Diversifying your investment portfolio is often cited as a way to ensure times of uncertainty do not cause too much pain. Ironically even the Greats of the investment world are divided on this subject. A quick google shows that Ben Graham and John Templeton bestowed the virtues of a well diversified portfolio whilst Charlie Munger and Warren Buffet are less keen on the idea. If the greatest investors of all time do not know the answers, what hope is there for the rest of us...?
The above though does refer to share portfolios and Buffets' famous mantra about quality over quantity. More holistically there's no doubt that having some diversification is important. Real Estate Investments, Fixed Income, Private Equity, Start ups, Crypto..., we could list hundreds of different asset classes which encompass literally billions of investment opportunities. Many of which will make money, many of which will lose
Probably the most common reason I hear for prospect clients not buying is that they "only invest in property" Often this is a sound decision as the investor understands the market, though why "only" invest there
Currencies are exceptionally volatile in nature and especially for us expats, having the correct spread here is important. Some of the recent falls in the stock market have been due to selling on valuations, nothing to do with Corona. Valuations are seen by some as being high. Selling at these high prices is the easy bit. The difficult bit is where to reinvest. Volume from the institutions in some of these recent stock market sell offs suggest currencies was where they went.
So the above in essence illustrates the need to diversify as if valuations are high and you have sold - back into shares may not be the way to go. Buy low and sell High
Holding cash is just going to lose against inflation and we all work far too hard for our money to do that
Getting the balance in your overall portfolio is such a personal endeavour. Your age, risk appetite, personal circumstance, income requirements so many factors need considering to give yourself a better chance of getting it right. Finding the right people with the right knowledge in these areas is key
Like everyone else is the world, I have no idea to what extent this Health Crisis will affect the world. As one of the greatest minds that ever lived Albert Einstein once said "In the midst of Every crisis lies Great opportunity"
Not many would think that Albert Einstein and Homer Simpson have a lot in common...but perhaps they have more than we thought...:-)https://www.youtube.com/watch?v=DzNSRYP00uQ
"Out of Complexity, Find Simplicity" (Albert Einstein)Happy New Year.
As we welcome 2020 we also welcome a new decade. The last 20s was somewhat defined by the stock market which led to both the most exciting and fun decade ever to years of post decade depression.
Of course we live in a very different word today but being financially secure and not having to worry about money would remain a goal of us today, a person living in 2020 , in the same way the same way they were goals for our descendants 100 years ago
So how did this decade end...well December was another top month for stock markets around the world, a real "cherry on the top" for what has been a very positive year across the board....data being:
MSCI World +2.9% +25.2%
S&P 500 +2.9% +28.9%
FTSE +2.7% +12.1%
Nikkei +1.6% +18.2%
SSE +6.2% +22.3%
MSCI EM +9.2% +24.8%
And on the currencies. The USD fell against its counterparts but still had a generally strong year. With the UK finally seeing some direction with Brexit, Sterling was the overall winner...data for USD versus being...
GBP -2.5% -4.0%
EUR -1.6% +2.5%
JPY -0.5% -0.6%
AUD -3.9% +0.1%
CNY -0.8% +1.4%
Hopefully many of you were toasting your portfolio performance along with the coming of the New Year. With great numbers like above, if 2019 wasn't a good year for you, its definitely time to change things
Using the S&P 500, a 28.9% gain made it the 5th best year since the Index began in 1957. Interestingly I had a look back on my blog on 1/1/19 and while you all know my thoughts on predicting and what a waste of time it is, below is what I wrote reference to patterns...not a million miles off what happened...
For those who look at patterns, the nearest example in recent history I could find was 1989, 1990 & 1991.
1989 was a terrific year (as was 2017), 1990 we saw a stumble, with the S&P experiencing losses almost identical to last year...and in 1991 we saw a 26% increase. I am sure we would all take that return on our hard earned cash over the next 12 months...or even half of that.
So what to make of this? The last quarter of 2018 and especially the worst December since 1929 was always likely to lead to a bounce and a good start to 2019, which indeed happened. Stocks were cheap in January. Upward trends then continued for the year.
Economic Growth remains strong across the world. The economy is generally in a good place despite often people's perception is different. We are overloaded daily with news, views, political dialogue, much of which is purported by those with an agenda, whether that be left wing / right wing whatever...
This leads people to think that the economy is "in a mess" or we are in "difficult times", but the numbers quoted above, markets at their highest ever suggests this is not the case
Best performing market in 2019 - Russia. Second best - Greece. Yup Greece who not so long ago were seen as a state of complete economic incompetency. Who would have had the foresight / guts to have invested there...those that did are 37% better off on those investments than they were a year ago
Losers were Chile and Poland who both suffered drops of more than 15% in their respective markets.
Leaders like Donald Trump and Boris Johnson are divisive characters and this creates political and emotional turbulence which can rub off on the markets. But all of this is still secondary to fundamentals. Well ran companies with good products will grow and so will your investment there.
A US$100,000 investment at the start of the decade into an S&P 500 tracker would today be worth US$287,622 - not a bad return - almost three times your money without having to do anything.
It doesn't always work out like that of course, go back the decade before and that same $100,000 invested on 1 January 2000 would be have been worth US$78,807 on 1 January 2010
Whilst I'm certainly not in a position to question the greatest investor ever, Warren Buffet on his famous "Time in not timing" quote ,when it comes to the market, every person's situation needs to be looked at in isolation.
The chap who was due to retire on 31 December 2009 and had all his money in equities would definitely think timing had an important role in him achieving his financial goals, which could have been ruined. So this process needs to be managed based on your time horizon until retirement, the level of wealth you feel you want / need, your risk, your attitude to liquidity etc.
Same chap who retires today would have out performed his expectations but did so with greater risk with equity exposure
Generally as you get nearer retirement and once you do retire, moving from Capital Growth to Fixed Income is a common sense approach. However in an era when bank interest in more established currencies in no longer available (and in my opinion gone forever), you have to either sacrifice liquidity or take on Capital risk.
This is complicated and requires expert advice to get it right. The lines between simplicity ("buy good companies") and complexity ("when to buy, when to sell, what to hold") are easily blurred and getting it right or getting it wrong can have a profound effect
Kick off 2020 by getting on top of your finances. Make an appointment, pop in for a chat with me and and lets see if we can create some clarity....
"Customers shouldn't think of your business as a place to buy a product or a service. It should be a fun place to be" (Richard Branson)So November comes to an end and only one more month until we wave goodbye to the year and enter a new one. Not only that a new decade...so been a good year for you so far?...data below suggests it should..
MSCI World +2.6% +21.7%
S&P 500 +3.4% +25.2%
FTSE +1.4% +9.2%
Nikkei +2.5% +16.4%
SSE -1.8% +15.2%
MSCI EM +1.6% +14.3%
So almost a clean sweep of positives, and on the currencies, we saw the Greenback do as follows:
GBP +0.2% -1.2%
EUR +1.3% +4.0%
JPY +1.4% -0.1%
AUD +2.2% +4.2%
CNY -0.1% +2.3%
So this year, the best money would have been on the S&P 500 with a 25.2% gain. That gain is the 14th largest since 1928 (when the index began). These gains were helped by a very strong start to the year following the mini crash in Q4 of 2018. In fact whenever both January and February have been positive, the S&P has gained an average of 24% that year, so we are just about on course.
Not only is the S&P the biggest mover but also the best indicator of where the economy is.
The Index represents the largest 500 companies in the US stock exchanges and undoubtedly during the course of today you would have used products and services by many of these companies and contributed to their continual growth
The total value of the S&P is US$26 Trillion led by tech giants Microsoft, Apple, Amazon (although this is technically consumer discretionary) and Facebook. These four company's combined market cap makes up around 13% of the Index.
The US is still way out in front when it comes to size and the old adage "When the US sneezes the rest of the world catches a cold" is still very true. This is illustrated when you consider that the largest companies on the FTSE and Nikkei (Royal Dutch Shell & Toyota) are approximately equal to just one fifth of Microsoft, the US leader and would rank about number 35. The largest on the German market is worth just 10% of the US big boys.
With Black Friday having just passed and Christmas around the corner, the focus is again on the consumer and its this growth in consumers which will continue to drive the value of these S&P 500 components. Colgate will see more tubes of toothpaste tomorrow than they did today
The world is growing (arguably too) fast and by the end of this year the number of people on this planet will have increased by the population of Germany, Europe's most populous country. These people will consume technology (the largest sector of S&P) and require Healthcare (second largest sector) so long term smart money should be there
So what will the next decade bring in terms of growth. Had you put US$100,000 on the S& P on 1/1/10 , that would be worth US$284,000 today. However go back and look at the decade before having just suffered the second worst ever Financial crisis your $100k would have been worth just $78k, the decade preceding that US$407k....
"The four most dangerous words in investing are "This time its different" "(Sir John Templeton)As we enter the last quarter of 2019, September, historically the worst month for stocks bucked the trend as we saw all major markets produce a positive return - data being:
MSCI World +2.0% +15.7%
S&P 500 +1.7% +18.7%
FTSE +2.8% +10.1%
Nikkei +5.4% +9.1%
SSE +1.4% +17.4%
MSCI EM +2.0% +7.6%
And whilst the USD remains steadily strong in 2019, movements against the Greenback were as follows
GBP -1.0% +4.7%
EUR +1.0% +5.1%
JPY +1.9% -1.3%
AUD -0.1% +4.5%
CNY -0.1% +3.9%
It seems every day we wake up, the news stories we hear are like the proverbial one legged duck - swimming round in circles. US / China Trade War and Brexit occupying much of our news feeds but with no clarity on progress, let alone solutions or an end.
This creates Geopolitical risk and allows markets to be volatile as buying and selling is driven by emotion and is reactive.
Ironically though it is those "Same Same" situations which are key to Long term successful investing. Most of us today will go about a routine very similar to what we did yesterday and are likely to do the same again tomorrow and the next day.
What do we do every day? - Brush our teeth (Colgate +24% YTD) , Wash with Dove Shampoo (Unilver +19.0%), Logon on to our computer (Microsoft +37% YTD), Eat something (Nestle +33% YTD), Drink something (Pepsico +26% YTD)...I think you get the idea and those companies who are the leaders in these areas benefit from the inherent growth story that more people will be using their products today than they did yesterday. We are all living longer. People from Developing countries are consuming more. The world's population increases daily by around 200,000 people. most of whom will eat, drink, wash and work..therin lies the growth and where the long term money should be
Long term though, is not what everyone looks for and that is why it is key to bespoke your portfolio. As we enter the last quarter of 2019, historically this has been the most fruitful for investors by some way. However that cycle was turned on its head last year when the S&P fell a whopping 14%. If you have one year to go to retirement and your share portfolio falls by 14% in a quarter, no matter how many of the great stocks mentioned before you own, it takes time to recover those losses and time may not be something you have.
This is why having Alternatives is also important. Owning assets without correlation to the stock market and / or produce fixed income protect you from similar scenarios such as what we saw this time last year.
So make sure that your portfolio is set up to suit your requirements. As I have said many times, no one has a crystal ball and can predict the future. The amount of times I hear comments such as "They say another crash is coming " - These statements have no substance. For every analyst who is bullish on the markets, you will also find someone who is bearish...so someone is right and someone is wrong. So you have to manage your position so you are hedged enough but not so much so that your growth is impeded...not an easy balancing act and an area we can help with
Sometimes it seems like we are in a forever changing world, yet sometimes it seems that we are living in GroundHog Day. Either way when it comes to investing never forget the words of the great Peter Lynch..."Know what you own and know why you own it"....
"Complexity is your enemy. Any fool can make something complicated, it is hard to keep things simple" (Richard Branson)A volatile August has come to an end with markets ending the month down. With the decent gains so far in 2019, this was not unexpected. So as much of Europe returns from their holidays, kids go back to school after the long break, what can we expect for September and Quarter Four as we head to the "Business End" of the year
August numbers being:
MSCI World -2.2% +13.5%
S&P 500 -1.8% +16.7%
FTSE -5.0% +7.1%
Nikkei -3.8% +3.4%
SSE -0.5% +15.8%
MSCI EM -5.4% +5.5%
On the currencies we saw a mixed month for the USD, losing ground against a strengthening Japanese Yen but an unusually large movement in the Chinese Yuan rate....raw data being:
GBP -0.3% +4.6%
EUR +0.3% +4.1%
JPY -2.7% -3.1%
AUD +1.7% +4.6%
CNY +3.9% +4.1%
September is historically the worst month when it comes to investing in the S&P 500 with an average loss of 0.5% since the Index started in 1962. Of course this does not mean that this month will be negative, in the same that that whilst Quarter four is historically the the most profitable - yet Q4 in 2018 was a shocker.
No form of predicting or forecasting can ever be certain. The truth is we do not know whether the markets will go up or go down next month, or indeed for the remainder of this year. This is even more apparent given the market volatility - the VIX which is the indicator of the S&P's volatility is currently 17 versus an average of 11.
Our job as Investment professionals is to look at what we do know and make a judgement call on that.
So what do we know?
We know that tomorrow we will eat, drink, wash, drive, use our phone, use a laptop...I think you get the picture.
Within the S&P 500 there are 57 companies which have been given the title "Dividend Aristocrats" This refers to companies who have increased their dividends every year for a period of 25 years or more. Its obvious that in order to do this, the company has to be successful and buying shares in successful companies gets you long term capital growth (and income to boot!).
Taking these aristocrats to the next level (Dividend Royalty perhaps) are 11 companies who have increased their dividends every year for more than 55 years. The largest of these and household names include :
Colgate 56 years
Coca Cola 57 Years
Proctor and Gamble 62 Years
An indication of enormous success is when a product is know by its brand name rather than its generic name. The term for this is a "proprietary eponym".
Certainly when I grew up I can remember using Tip - ex and my mum using a Hoover. It probably wasn't until I was in my teens that I was aware these were actually called correction fluid and a vacuum cleaner. Coke (Dividend Royalty) is another example, I can't ever recall asking for a can of "Cola" I've noticed here in Thailand, locals referring to crisps / chips as "Lays" (Pespico Brand - Dividend Aristocrat") and rarely do you hear the words nappies or diapers, its always "Pampers" (Proctor & Gamble - the King of Dividends with its 62 year ongoing increase!)
With the aforementioned companies looking after our everyday needs, the daily increase technology has on our lives and the requirement for pharmaceutical companies to provide healthcare for a growing and ageing population, it's large companies in these sectors that make up the lion's share of the S&P 500. We know the products and services provided by these multi nationals will be used tomorrow. This is illustrated in the index's performance having averaged 9.8% per annum. A 30 year old who saves US$1,000 a month at those rates of return has US$2.09 m by the age of 60...
Using Investment legends like Peter Lynch, Warren Buffet & Terry Smith could have got you 50% more (though there isn't time for the active v passive argument here)
So focus on what you know. Like Pepsico, Coca Cola, Unilever, Proctor and Gamble will sell their wares to billions of people in 180 different currencies tomorrow. Leave forecasting to others as it really is a thankless task. Just ask Michael Fish the former BBC weatherman who despite getting the weather forecast correct 90%+ of the time will forever be remembered for the one time he didn't.
In 1987, on the eve of the Greatest storm the UK had seen in living memory Michael jovially stated "Earlier on today, apparently, a woman rang the BBC and said she heard there was a hurricane on the way. Well, if you're watching, don't worry, there isn't! - DOH!
"It's not whether you are right or you are wrong, its how much money you make when you are right and how much you lose when you are wrong "
(George Soros) Firstly apologies for the monthly update being late this month. Busy travel schedule and other commitments meant simply couldn't find the time until today..will be back to 1st next month I promise
Avid market watchers will have noticed that August has got of to a difficult start, with some of July's generally steady gains been given back already
That said, although China and EM had a negative month, developed markets continued the upward trend of 2019 with steady gains for July ..raw data being
MSCI World +0.4% +12.8%
S&P 500 +1.3% +18.9%
FTSE +2.2% +12.8%
Nikkei +1.2% +6.3%
SSE -1.0% +19.5%
MSCI EM -0.9% +12.5%
And on the currency front, the ongoing political uncertainty in the UK has seen Sterling have a bad month , the USD's performance against other currencies as below
GBP +4.0% +0.4%
EUR +0.8% +2.9%
JPY +0.9% -0.3%
AUD +1.3% +0.3%
CNY -0.2% +0.2%
So how much do currencies actually matter when it comes to investing? We all know how much they matter when your earnings / savings are generally in one currency but your spending is in another.
Nowhere is this more prevalent than for retirees who are on a GBP Pension in Thailand with their living costs being in Thai Baht
The double whammy of a very strong Thai Baht and very weak British pound has caused a dramatic drop in spending power for those who are on a fixed income in Sterling. So much so that many are even questioning whether they can afford to stay.
To illustrate this, a retiree who was on a £3,000 a month pension today receives over THB200,000 a year less ithan he did just 12 months ago. Go back to the heady pre-Brexit days, he was THB600,000 a year better off
A way to manage your currency is to have a spread of different options to draw on. Having earnings in the country you live in offers you some protection from scenarios such as above, but also having bank accounts in major currencies, USD , EUR & (dare I say it) GBP
So how does this reflect on your Investment Portfolio? Owning Global companies with Revenue streams from all over the world gives you that currency protection. Regular readers will know that I often talk about companies like Unilever and Diageo – investing in Global players reduces currency risk as oppose to a company that derives the majority of its income from one area
Moving onto markets themselves, as they have had such a good run in 2019 and generally been going up for over a decade, the question I get asked more is “when will the next crash be?”
This of course is assuming there will be another crash, as its human nature to think so. There is no doubt that equity valuations are somewhat high and taking some profits now is a good idea. As with every other Wealth Manager in the world I do not know what will happen in the markets in the next six months, precisely why when you look at analysts forecasts, half will suggest the market will continue to go up, half it will go down
A longer term investment horizon always leads you back to good Equity Funds. Good managers who buy good companies. That said we all also want to protect our gains
So sell now and the tricky question is what to do with the proceeds. Opportunities both correlated and non correlated to the stock market do exist and can earn you 5% + without taking on too much risk to obtain those sort of returns. You do though have give up some liquidity and be prepared to tie monies up for 2 – 5 years.
So that’s the trade off. Your investment portfolio should not have the proverbial eggs all in one basket. This is true for both asset allocation and currencies as mentioned earlier.
if a certain sector was to suffer a crash, your diversified portfolio means your losses are limited…make sure you are positioned where you need to be before its too late…
"Know what you own and know why you own it" (Peter Lynch)Quarter 2 for 2019 is over and after a difficult May , the markets in June had a great month, in fact the best since 1955 culminating in the best 6 months the S&P has had this century, 1997 being the last time S&P returns were better...raw data being
MSCI World +6.5% +15.6%
S&P 500 +6.9% +17.4%
FTSE +3.7% +10.4%
Nikkei +3.3% +6.3%
SSE +2.8% +19.5%
MSCI EM +7.7% +12.5%
And on the currencies, in what is usually a volatile area..somewhat of a benign month with major currencies edging their way back against the USD
GBP -0.5% +0.4%
EUR -0.1% +2.9%
JPY -0.4% -1.6%
AUD -1.2% +0.3%
CNY -0.6% -0.2%
So all in all a great first half to the year but to take the old football adage is 2019 going to be a a "game of two halves"
The above positive data somewhat seems to defy the general consensus on the state of the economy. Politically we are in an era where there are devisive figures about and perhaps its that which leads to the constant flow of comments such as the UK and the US being "in a mess" . Good performing markets, some of the lowest levels of unemployment in many years suggest otherwise.
I often talk about the consumer being a driving force in equity markets. The more tubes of toothpaste Colgate sell, the more the value of the company increases etc
There is an index out there which measures Consumer Confidence which is defined as "the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending"
Five contributing factors go into this measurement are:
The US however is sitting at 93%, Developing market giants India and China at 91% and 98% respectively...Vietnam is at 100% meaning never has consumer confidence been higher
Geo Political risks are there, the possibility of military action against Iran is strong with Donald in charge but history has shown that the market reaction will be short and brief
When grim headlines are in the news, its best to remember that geopolitical events are a regular part of investing but a long history of geopolitical developments shows us that these are only very short term. You should avoid overreacting to geopolitical developments and stick to long-term financial plans.
In fact, the above data still remains strong for both China and the US despite the "Trade War"..The Chinese markets and US markets being the best performing of those listed above. Whilst I hate predicting what will happen, I think we can expect a good day tomorrow as the talks between Trump and Xi at the G20 were reported as positive.
So I remain bullish and advocate well managed equity portfolios that own good companies that sell good / useful things for the consumer. I'm often asked about Gold and my answer is I do not buy it because I do not understand it. Unless you rock the Mr T look in the picture above, ever since the Gold Standard disappeared in the first half of the last century, I do not understand what value it has
You cannot eat it, burn it for fuel, send a text message with it , cure a chronic disease etc
And the results speak for themselves. Over the last five years, Gold returned an average of 1.3% per annum barely an inflation buster and in line with fixed deposit cash. The S&P returned 10% per annum....
Some businesses are inherently good. They have products that everyone wants and needs, this is where your long term steady growth is. To quote again the great Peter Lynch "Buy a Business that any idiot can run, because sooner or later any idiot probably is going to run it".....
"Prediction is difficult, especially when it involves the future" (Mark Twain)
So after a tremendous start to 2019, we had an adjustment across the board in May, perhaps a little more severe than anticipated although around half of those losses came during the last week.
Raw Data being...
MSCI World -6.1% +15.6%
S&P 500 -6.6% +17.5%
FTSE -3.5% +6.4%
Nikkei -7.4% +2.9%
SSE -5.8% +16.2%
MSCI EM -10.5% +4.4%
On the currencies, it was a strong month for the US Dollar, with gains across all major currencies with the exception of the Japanese Yen. Sterling had a tough month, with the political announcement that Theresa May was stepping down as conservative leader / Prime Minister giving the currency traders something to manipulate (despite it being on the cards for some time).
GBP +3.1% +0.9%
EUR +0.7% +3.0%
JPY -2.9% -1.2%
AUD +1.7% +1.5%
CNY +2.5% 0.4%
You may hear some Dinosaurs quoting the old saying about stock market investing in that you should "Go away in May and come back on St Leger's Day"
No doubt using the fall in the last month to vindicate this out dated theory. Looking at stock markets over the last fifty years, it is remarkable that 96% of gains have come from the months of November to April but only 4% have come from May to October. However looking at the last five years this gains have been split far more equally with 43% coming in the summer months (northern Hemisphere) and 57% coming in winter.
The world and the stock markets are of course very different places now to what they were 50 years ago so using seasonal cycles as an investment strategy in today's world is futile. Picking the time of year to invest is the same as making predictions and those of you who read regularly know my view on that.
Predicting market highs, market lows, when to buy and when to sell is not something that anyone is capable of doing accurately. Market analysts work hard on forecasting and of course your investments need to be assessed from time to time and views taken. I took quite a bit off my client portfolios at the end of April, not because I was predicting that May was going to be a particularly bad month, but simply because it was the sensible thing to do as there were good gains to lock in.
When you buy, when you sell is a bespoke individual decision based on many factors, not least the life cycle of your portfolio and where you are in that. Stock markets are volatile, we all know this and in this current era where we have the most volatile personality of any US President before, this will be highlighted. Friday being an example when Trump's announcement for the tariff on Mexican imports was both unpredictable and caused a hefty market reaction.
There is though always a "good home" for your monies when you do trim equity gains as would have been a good idea in April. Diversification is key and where the opportunity may not seem right in equities - bonds, derivatives, hedge funds and many other vehicles offer you the option to continue to make money even in a downward turn
But even in the equity space there were some shining lights last month. The Lindsell Train Global Equity Fund - probably my favourite Global Equity fund still made a 1.8% return versus a benchmark MSCI Global of -6.1% ( This same fund that was up a whopping 11.1% in 2018 when Global Equities were down) So what is their "secret". They buy good companies with good products that sell to a growing number of consumers. Around 15% of this fund is invested Unilever and Diageo. Tomorrow more Magnum ice creams and bottles of Johnnie Walker will be sold than yesterday...
Using information to make informed decisions on what areas will be successful and what areas less so is the way to obtain consistent capital growth despite fluctuations as we have just had. Not predicting which is a complete waster o money...just ask anyone who had a bet on Anthony Joshua last night......
As always feel free to get in touch to disuss further....