Winter Investment Review
Winter has finally arrived in Wiltshire and it’s now dark for 5:00PM, but the wood is ordered for the log burner and seeing friends and family over the festive season will be fun, we wish everyone a merry, cosy and calorific yule tide.
Obviously, recent times have been sharply volatile. Portfolios will have fallen in value in the short term, the income yield remains in place and we have used the cash we raised over the summer to bring portfolios back to weight in equities, particularly the UK and the US.
Our overweight position in GILTS versus the relevant benchmarks has held back performance in recent times, but we held it as a hedge against market falls and over recent days and weeks it has done its job- we will retain this holding as we move through the last months of BREXIT negotiations, although as rates rise in the medium term we will reduce the exposure (as interest rates rise GILTs may fall in capital value).
We think we are within a ‘liquidity’ pinch where the unwinding of QE, rising oil prices and increasing of rates by US FED takes money out of the system, market participants have needed cash to plug that gap, and on the other side people have less cash to buy that asset, there are more sellers than buyers.
Our last commentary touched on the risk in the rise of US equities and equity markets in general and we held historically high levels of cash over the summer- having sold FTSE 100 and S&P 500 passive funds. The recent correction gave us an opportunity to reverse that trade, at this time clients are relatively fully invested and the pace of investment for newer clients is over a six-week period rather than six months.
In the long term it is best to be fully invested at current valuations, as opposed to those we saw in May, and in this environment of continued volatility we will take profits if we see a recovery into the holiday period. The risks of the Chinese-US trade war, the Central Banks withdrawal from the bond markets and the FED following through on an expected four further rate rises and the linked strengthening of the USD are real, and something we watch carefully.
The ‘Give Away’ budget (I think we’re supposed to be grateful?) thanks to the UK’s better than expected economic performance and perhaps the US FED electing to make more ‘Doveish’ noises (slowing the pace of raising US interest rates) releasing pressure on emerging market currencies and assets, and the various European political risks being dealt with pragmatically, could equally support markets. The corporate reporting season has shown that there is still good news out there, just not all good news, and expectations of firm’s earnings are high, so companies better not disappoint. We’ll continue to manage your funds in line with your objectives, through the continued volatility. This will give you the opportunity to make money in the long term after the influence of the inflationary real wage rises.
The opinions expressed are not necessarily the views held throughout Casterbridge Wealth Ltd. The information in this document does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. This document is for the information of the recipient only and should not be reproduced, copied or made available to others.
Past performance is no guarantee of future results. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.