​"Those who have knowledge don't predict, those who predict don't have knowledge" (Lao Tzu)Its half time in 2018, and after a two month break, the monthly  market update is back. The reason for the hiatus was that I have now moved from Offshore Investment Brokers to Tenzing Pacific www.tpim.co. 

So the raw data for June / YTD is:

                               June               YTD

Dow Jones           -0.6%               -1.8%
Nasdaq                 +0.9%              +8.8%
FTSE                    -0.5%                -0.7%
Nikkei                    +0.5%               -2.0%
SSE                       -8.0%               -13.9%
Dax                        -2.4%               -4.7%

And on the currencies, the following versus the USD
 
GBP                         -0.6%               -0.6%
EUR                         +0.1%               -2.6%
JPY                           +1.7%              +2.0%
AUD                          -2.2%               -5.6%
CNY                          -3.4%                -1.8%

So as the red shows, the markets have ben a pretty tough place to be so far in 2018.  Unlike the preceding couple of years where everyone should have been making double digit returns without too much effort, its when market conditions are more difficult that the professionals come to the fore.

One of the most glaring figures is the fall in China'a markets , down nearly 14%. The tariffs being imposed by the US in the so called "trade war" have been a factor here. This has caused the  Chinese to devalue their currency in a bid to lessen the impact on these higher costs for overseas buyers.

But of course there are still many opportunities in China, a vast market in a country which is still experiencing tremendous growth. To pick one of my favourite funds in this space, FMG, their Year to Date performance has been +1.8%. Whilst this may not sound overly exciting versus a market decline as mentioned you'd take this.

This is not necessarily about the active versus passive approach, which I have spoke about before. Both methods of investing have their pros and cons, although even if you prefer using lower cost passive vehicles, these still need to be correctly managed. Fund managers can go short, go into cash (FMG is 36% cash at the moment which no doubt protected itself from the Chinese market decline) and use their skills, access to research and information and experience to provide good returns for their investors.

Another example is Lindsell Train who you will have heard me speak about before. Their UK equity Fund (which buys FTSE100 shares) is up just under 11% this year, the FTSE is down 0.7%. 

The research element is vital as professional fund and wealth managers do not try to predict the future, they make decisions based on information. I am sure we have all been watching the world cup and having the occasional flutter, if you are like me, losing more bets than winning.

This is because the world cup is unpredictable. Who'd have thought we would have lost the champions at the Group stage, first time Germany have gone this early since 1938... 

My new employers Tenzing Pacific are very heavily invested in research and offer a Managed Account Service and I will be assisting their committee with asset selection. 

Of course, regardless of the research and information you have , this does not guarantee you success and profits, but as long as it is used and interpreted properly, it does give you a better chance..

As always please feel free to get in touch, phone numbers the same, new email address craigmcavinue@tpim.co

​"Development is about transforming the lives of people, not just transforming economies" (Joseph Stiglitz)So Quarter 1 has come to an end and whilst some parts of the world celebrate the Easter holidays, we can reflect on a difficult month of March and a difficult volatile start to 2018.

Although we are always going to get the occasional bump, poor month with equities, the last two months have seen more severe drops placing most markets into negative territory for the quarter, a position we have not seen for some time. So the raw data being:

                             Mar                  YTD
Dow Jones           -3.7%               -2.5%
Nasdaq                 -2.3%               +2.3%
FTSE                    -2.4%                -8.2%
Nikkei                    -1.6%               -5.8%
SSE                       -2.8%               -4.2%
Dax                        -2.7%               -6.3%

And on the currencies we continue to see a gradual slide on the US$ against most major currencies, the Australian dollar being the exception......

GBP                         -2.2%                -3.8%
EUR                         -1.1%                -2.8%
JPY                           -0.5%               -5.8%
AUD                          +0.6%              +1.6%
CNY                          -0.9%                -3.5%

So what to do amongst this sea of red - not to mention the volatility which has been quite frightening also? As I always say, we invest our clients money for the long term, don't focus on the short term, the emotions which cause markets to move or events which simply cannot be predicted. If I say it one I'll say it 1,000 times, predicting the future is a futile exercise.

The last month saw a couple of events  have massive effect on the share price of two of the most innovative companies of our time.If you had invested US$10k in Facebook and US$10k in Tesla at the beginning of March that investment would have been worth just over US$16k today, the kind of hit no one wants to make.

The Facebook data breach and the tragic accident with one of Tesla's cars were the catalysts for these sharp falls in their share prices (Followed by market emotion). Neither of these events could be predicted (again futile). But the fact remains that Tesla's technology will play a part in our future and there will be more Facebook users tomorrow than there are today and more the day after. Focusing on a short term drop in share value for investors (not traders) is not relevant to obtaining long term growth. Over the last five years, Facebook would have made you 488% , Tesla 548%...not bad

Only professional investors or traders (gamblers) should be owning direct equity anyway. Well managed funds are the key to spreading your risk so you are not vulnerable to the falls such as mentioned above. A couple of funds you always hear me mention illustrate the point. the Janus Henderson Fund (which would own Facebook) is still up 7.5% this year, over 5% better than the Nasdaq and representing a 30% annualised return in a time when markets are down (appreciate the tech sector still being positive)

Another fund you always hear me talking about Lindsell Train, is down 1.4% for the year. LT invests approximately half UK half US so its benchmark for the year would be around -5%. Not only do good managers outperform the market when things are going well but when there are downward trends, they do not see their funds fall as far. Another reason to choose active over passive. This is what these people are paid to do. Thousands of hours of analysis take place not only to increase the probability of good growth but also to protect you on the downside. I still meet too many people who believe they can beat the market with individual shares and dare I say it Crypto currencies.  But as you an see you are playing a risky game with this. 

The Bitcoin brigade seem to have disappeared from my various Facebook / twitter feeds etc. This has now fallen below US$7,000. Lots of noise was being made at the end of 2017 , start 2018 when the price reached just shy of US$20k.

Some die hards (who may or may not have been invested) will still point to the return in 12 months of around 700%. But do you really want to be in an investment which has been as low as $1k and as high as 20k in 12 months. We talk about the volatility in the equity markets this is 100 fold ....Yes sure enjoy trading it but for long term capital growth , not for me. Its also still worth putting its relative size into perspective, the value of all the bitcoin in existence is less than the market cap of McDonalds and about a quarter of that of Facebook. a niche market.

It's people and the consumer, especially like our friends in the above picture from the developing world  who will drive the growth, spending money on the same things people in the developed world do, perhaps Facebook advertising and eventually driverless cars..... .

​"Buy low and sell high. It's pretty simple. The problem is knowing whats low and whats high"  (Jim Rogers)So after months of upward  momentum, finally the bears have come out from whatever they were doing in the woods shouting "I told you so" as results across the board for February were negative as follows:


                                        February            YTD

Dow Jones                          -4.3%              +1.3%
Nasdaq                               -2.4%               +4.8%
FTSE                                   -4.0%              -5.9%
Nikkei                                   -6.7%              -4.2%
SSE                                     -5.8%               -1.5%
Dax                                      -5.7%               -3.7%

On the currencies, with the hawkish views of the new Chair Fed Jerome Powell we saw the dollar begin to strengthen again, most notably yesterday when Jerry hinted we might get four rate rises this year instead of three....

GBP                                      +3.1%             -1.6%
EUR                                       +1.6              -1.7%
JPY                                        -2.6%             -5.3%
AUD                                       +3.6%             +1.0%
CNY                                        +0.7%             -2.6%

So what is the root cause of the the drop and the volatility we have seen in February? One word interest rates.

When the Dow Jones suffered its "biggest fall in history" on 5th February, all the media outlets were quick to jump on this , sensationalise / scare. There was a market sell off, its that simple. There was talk of the 10 year treasury surpassing 3%, more interest rate rises in the US and I guess some fears about valuation in certain sectors (most tech funds had made 40 - 50% returns in the preceding 12 months so why not sell and take some profit). I have been doing this all the time as I hope you have.

But again to put this "biggest fall in history" into perspective, it was due to the shear strength of the market as to why it was the "biggest". That day the Dow fell 1597 points which was a fall of 6.2%. In August 2015, in one day the Dow fell 6.6% but yet that only equated to a 1089 points drop....shows how far we have come.

By the way all of those losses had been recovered by close of play on the 7th February so a full 48 hours for sense to go back into the markets and traders buying the dip.....far from the financial crisis many annoying media outlets would have you believe.

Interest rate rises happen because the economy continues to strengthen. US unemployment has fallen continuously since 2009 when it peaked at 10% to now where it is at 4.1%. This means we are finally seeing some inflation, so the Fed have to react to this. But in reality, good luck finding anything better than 1% unless you want your funds tied up for considerable periods of time on cash.

And this is only the US Dollar , the Euro and British pound have no reason to rise their rates. Well invested funds have averaged over 20% per annum in the last five years. Whilst we cannot expect this level to continue forever, the companies themselves certainly believe the bull market is here to stay.

This year Goldman Sachs noted that there has been record share buybacks from companies, US$177 Billion so far. Don's tax cuts will also inject a further US$1.4 trillion into these companies.

Nobody ever likes to see the value of their portfolio fall, even if it is in the very short term but if you want a return on your money, well managed funds owning good companies is the way to go. Whist I'm not sure we can continue at 20% (and I hope we have all loved every minute of these returns) , 10% per annum  I think is achievable. 

So for me , having money in cash / treasuries , which may pay me approximately  2% per annum over the next 10 years is simply not even an option to consider...though I guess for some it is.....

"Success is not final, failure is not fatal, it's the courage to continue that counts" (Winston Churchill)​
 The first month of 2018 has continued in the positive manner of 2017, with a stellar month especially in the US. Regardless of other effects Donald's stewardship has, having a businessman in the White House so far has been good for the economy.

One thing is for sure though Donald will be the first to tell you that it was down to his decisions why the US markets are experiencing such tremendous growth, growth I believe is here to stay
 
The FTSE was the only laggard, mostly due to the ever strengthening pound given the revenues of many of the top index earners are in other currencies, anyhow the data for the month..
 
Dow                 +5.8%
Nasdaq            +7.4%
FTSE                -2.0%
Nikkei              +2.6%
SSE                  +4.7%
Dax                  +2.1%
 
On the currencies, the USD continued to weaken, again something Donald has wanted to stimulate exports and no doubt he won’t be shy in taking the credit. The Pound is finally back in the $1.40 range, a rate that looks recognisable post Brexit and the Euro also continues to gain strength…so the greenback fell as follows:
 
GBP                 -4.9%
EUR                 -3.3%
JPY                   -2.7%
AUD                 -2.6%
CNY                 -3.3%
 
Successful investing  in the markets can be summed up in two words "asset allocation".  Knowing when to take a profit is important but as someone who is focused on long term capital growth, to coin the Warren Buffet phrase its "Time in not Timing", and whenever profit is taken it has to be reinvested somewhere. 

Regular readers will know that two of my favourite managers are Terry Smith of Fundmith and Nick Train of Lindsell Train. In 2015 it made the news when Nick Train bought his first stock for the fund in four years. Some may argue that is lazy management, after all he is taking a fee to buy & sell the right companies.

The fund though was one of the best performing (and it continues to be) so the investors are getting a good return on their investment, which after all is the name of the game.

Nick, Terry, Warren's philosophies about doing the proper research and analysis so you end up buying quality companies and trusting them to give you the return  is a tried and tested way to make money. 

Of course no one is going to get it right all of the time and whenever you realise that you have made an error, you do need to be brave enough to fix it. Selling at a loss is one of the most difficult things to do, especially if the markets are going up.

Our job like the fund managers is to position clients in the right areas. Its all about making the right choices, the correct decisions.

One of the stories of January was the reverse takeover by Keurig Green Mountain of drinks firm Dr Pepper Snapple. During the day at one point the shares were up over 40%. Both Fundsmith and Lindsell Train had relatively high exposure to this company at 3.8% and 1.8% weightings respectively. 

Investors in these funds benefitted from the manager's good choices. We all make good choices but  as Ken Basin pictured above, who got all the way to the million dollar question only to get it wrong,  will attest to  ...some times we also make bad ones.....

"I wouldn't say I was the best manager in the business. But I was in the top one" (Brian Clough)​
Happy New Year.....

Lets all hope that 2018 is as prosperous for you as 2017 was. If you didn't have a stellar year with your portfolios / pensions , and by that I mean at least a 15% return, then hopefully I'll be getting a call from you early Jan... :-)

So the raw data

                                 December              2017


Dow Jones                   +1.8%                  +25.1% 
Nasdaq                         +0.4%                  +28.2%
FTSE                           +4.9%                    +7.6%
Nikkei                          +0.2%                   +19.1%
SSE                             -0.3%                    +6.5%
Dax                               -0.8%                   +12.8%

And on the currency markets, the US Dollar had a mixed month  against major currencies. A lot of commentators are suggesting we have a weak USD and in fact this is a contributor to the US market returns.

As a Brit who continues to think in GBP, I cant quite grasp that concept, as one pound still only buys you $1.35. I would say the dollar isn't cheap nor expensive though against the EUR and AUD I would expect to see it claw back some of those 2017 losses. .....the monthly / annual movements versus USD:

GBP                                  +0.2%                   -9.4%
EUR                                   -0.6%                   -14.1%
JPY                                    +1.0%                   -3.7%
AUD                                    -3.2%                    -7.8%
CNY                                    -1.7%                    -6.3%

So what can we expect for the coming year ahead? Are we going to see equities crash? Should we all buy Bitcoin. Will commodities make a comeback?

The answers of course is no one knows. If I have said it once I have said it a thousand times predicting  the future is a waste of time, so why do it? After all no one knows for sure what will happen tomorrow let alone in the next 12 months. 

Of course in my line of work its important for me to have educated ideas about which areas of the markets will gain my clients the best growth and where perhaps should be avoided. Regular readers know that Technology, Healthcare and Consumer Staples have been sectors I have favoured as I believe there is inherent growth here. Although for the long term approach I still own personally and for clients funds in these areas I do appreciate that with the recent gains in Technology, its time to lock in some of those profits so I am advising clients to sell half.

As well as market sectors, having the correct diversification geographically is also important. Emerging Markets are an area which all clients should own though the term is rather ambiguous. Emerging Markets could be say Malaysia and Poland, yet there is little correlation and you may well be bullish on Malaysia and Bearish on Poland or vice versa.

If I was to go out on a limb here then India and Latin America would be where I would suggest the best potential for growth exists. How you invest in these areas is with good fund managers who buy good companies. Buying the brains or following the Smart money are two philosophies I follow which allow me to obtain  long term capital growth for my clients.

Probably the greatest manager of all time was a guy called Peter Lynch who worked for Fidelity in the 1980s. With exactly the same information that everyone else had, during his tenure as manager of the Magellen Fund, had you handed Peter GBP100k to "play with" in 1977, by the time he retired as manager of that fund in 1990 you would have a cool GBP2.7m...Cheers Pete

And this was during a period when the US experienced three recessions and in October 1987 the markets fell by over 22% in one day, almost double the second worst day in history. Despite these setbacks, Peter still  managed to average 29.2% per annum return for his clients.

As with all walks of life, there are superstars out there. You have heard me talk on numerous occasions about Terry Smith and Nick Train. Whilst not quite emulating Mr Lynch's incredible returns, over the last ten years they have averaged around 16% - again this period including the 2008 crash. With this level of profit you would have earned you GBP1m on a 100k investment in 15 years.

Go back 12 months and another name to add to Messrs Smith and Train would be Neil Woodford. I still buy Neil's fund although he has struggled to the point where his performance in the last 12 months has left him in the bottom quartile. As the title to this email suggests though, I believe its a blip and if anything his fund offers more value now.

Whether its football management, running the 100 metres or looking after clients monies, some people are just better at doing this than others......so let them....

​."It has become appallingly obvious that our technology has exceeded our humanity" (Albert EinsteinThe first month of the most profitable quarter turned out to be the most volatile, but at the month end everyone should have been richer with all major markets  finishing higher.

Data being...

                                               October                     YTD

Dow Jones                                 +4.3%                    +18.3%
Nasdaq                                       +3.6%                    +25.0%
FTSE                                           +1.6%                    +4.9%
Nikkei                                          +10.1%                  +17.2%
Dax                                             +3.1%                    +15.2%
SSE                                             +1.4%                    +9.5%

And with currencies as anticipated we saw the USD slowly clawing back some of those losses from earlier in the year...

                                                     October                     YTD

GBP                                                +0.8%                     -7.6%
EUR                                                 +1.4%                   -10.7%                                               
JPY                                                  +1.1%                    +2.6%
CNY                                                  -0.1%                     -4.4%
AUD                                                 +2.2%                      -6.3%

You can see from these stats that the leading market or where you would have had the best returns was  the Nasdaq. Being the market where the tech companies trade, this is no surprise when you look at the staggering numbers and facts around the giants of Industry in this sector, Google, Apple, Facebook, Amazon and Microsoft in particular. Buying theses five companies on 1 January would have given you  returns of 32%, 46%, 57%, 47% and 32% respectively and there's still some gains to be had in 2017 in my opinion.

Amazon's share price went up over 13% in one day last week, taking its price to over US$1,000 a share and making Jeff Bezos, the company founder the world's wealthiest person, leapfrogging Bill Gates. With fellow tech pioneer Mark Zukerberg at number five, this also illustrates the power of the industry with three of the world's top five richest coming from this sector.

 Ten years ago had you put US$10k into each of the above (except Facebook which wasn't public yet), you would have reaped US$270k for your US$40k investment and that was also in a period when the stock markets suffered their biggest crash since 1929. And this growth is here to stay as man's ability to innovate continues.

The spectrum of technology is wide but one area which is of particular interest is Artificial Intelligence . I am sure many of you have seen this (probably through Facebook, or Googled it on your Microsoft windows PC or Apple Iphone ordered from Amazon......). I have to confess to not realising just how far companies like Hanson in the Robotics industry had come. I'm not sure what to make of Sophia.....here's the link for those that have not seen it

https://www.youtube.com/watch?v=S5t6K9iwcdw

The Giants of this industry I have mentioned above will all have their stakes in all aspects of tech as it continues to develop and dominate our lives. And when I say Giants, they truly are that. The combined value of Apple and Google now sits at over US$1.5 Trillion. To put this into perspective all the talk of late has been of Bitcoin. I am undecided as to whether buying Bitcoin is a sound long term investment. I can see the fun and gains (or heartache and losses) that can be had trading it and whilst I think Cryptocurrencies in general will play a part in our Financial system, that part for me is a "bit" part. To put it into perspective the total value of all Cryptocurrencies in existence is  approximately US$100 billion. So the aforementioned two companies are fifteen times bigger. Thats two companies (admit ably large ones) out of a total of 2,800 companies on the New York Stock Exchange, this exchange being one of hundreds in the world. When you also add cash into the equation, banks etc the relative size of Bitcoin is so small that it is simply not on my radar.....but good luck if its on yours





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