Calm before the storm…..

“Diversification may preserve wealth but concentration builds wealth” (Warren Buffet)July seems to have whizzed by. Despite seeming a fairly benign month for stock markets, most days on the S&P seeing less than 1% movement, other markets had a bit more bounce. China and Emerging Markets in general benefitting from the upside , with the FTSE getting hurt the other way….data being

                              July              YTD

FTSE                    -4.4%          -21.8%
Nikkei                    -2.6%          -8.2%
SSE                      +10.9%        +8.5% 
MSCI EM              +10.7%        +5.2%
MSCI World         +4.6%           -2.3%
S&P 500               +5.5%          +1.2%

Currencies saw a full house of losses for the Greenback …meaning with the exception of GBP, the USD is down against other major currencies in 2020

GBP                       -5.6%           +1.3%                  
EUR                      -4.8%             -5.2%
JPY                        -2.0%           -2.9%            
AUD                      -3.3%             -1.5%
CNY                      -1.3%            +/- 0%

So what does all this mean moving forward? The months of July – September often see the lowest trading volumes, but with the US elections coming up in November, we can expect that to be ratcheted up in the weeks preceding  the vote.

Historically the position of the stock market and a voter’s portfolio are strong influencing factors as to how a person votes. Therefore the current administration will be doing all it can to keep the stock market buoyant.

I have spoken in previous blogs about the importance of having sector specific investments especially in times like these. Regardless of how good the company, any travel related companies will be hard hit in these times, yet  companies in sectors like E Commerce will do well. Amazon by the way up an eye watering 67% this year.

The above stats suggest you should also look for the right geographical location.

Using global companies that sell to all countries allows you to have this global exposure without taking on too much risk. China cannot be ignored and having a small amount of your assets invested in their markets, along with other Emerging Markets makes sense. Just as long as you understand its longer term play, volatility is increased and in some cases due to lack of regulation, you may be playing with a “stacked deck”

But using good managers and focusing on the consumer will reap rewards as long as managed properly in this space.

The performance of the FTSE has illustrated how arbitrary passive investing can be. Those of you Brits who have private pensions through UK companies are likely to have a good chunk invested in a Vanguard or BlackRock FTSE tracker. Although you would expect UK pension companies to invest in the UK market (as German pensions would invest in German market , Australian in Australian market etc) when you actually look into the the underlying, this is not always the case.

Oil companies and banks make up a disproportionate amount of the UK’s top 100 companies. Regular readers will know these are sectors I generally avoid and when you compare the above year to date performance of the FTSE compared to other areas, it is by far the laggard. The small increases in GBP also have a negative effect as the big players derive their income in USD but report in GBP.

This does not mean that you should avoid investing in the UK, just understand what you are buying there and ask yourself is an investment in the FTSE really a UK play? Far too many people have pensions invested like this and much more growth can be obtained by micro managing the sectors. Its definitely worth getting in touch to find out more about having control over these assets and arranging a SIPP (Self Invested Personal Pension) to obtain more growth. An extra 2% a year over 20 years makes a big difference.

While the dollar slides, this is often an indication of inflation as one dollar buys less, yet wages are stagnated. The surge in unemployment caused by Covid 19 and the unknowns surrounding the  US elections do make for an interesting few weeks. So now more than ever must we heed the words of the great Peter Lynch…”Know what you own and know why you own it”…..


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