Please find below our Investment Market Update as at 23rd June 2020.
Blue Sky Investment Market Update
Change is the only constant
I know I am preaching to the converted here, but Financial Planning is more important than ever before in this uncertain world.
So, you can understand my disbelief when I read a statement in the Sunday Times at the weekend that stated “the final decades of our lives requires long-term planning, how can we plan when politicians keep changing the rules”? What a ridiculous comment. Politicians have always changed the rules. Change is constant, even more so in the world we now live in. Any worthwhile financial planning modelling needs to adapt to changing scenarios.
The debt that the government has amassed will have to be paid down somehow, but for the time-being, expect yet more stimulus. The latest rumours are around reductions in VAT for a period, to encourage spending.
Low interest rates will help the government service the debt but, at some point, taxes will rise. The comment from the Sunday Times article was in context of anticipated changes in the triple lock on State Pensions. However, their article went onto to say:
“How can we seriously expect young people to save money today for expenditure half a century away, when they see governments moving the goalposts”.
No mention of pension freedoms and auto enrolment which gives young people more control of their future than ever before!
Our lives are changing, but any worthwhile financial plan has to flex and adapt to be relevant too. It is important to explore what’s possible and not to be paralysed by fear or anxiety. Something the press are very good at creating!
Adapting investment portfolios
We’ve held a number of client reviews recently and I’m pleased to have been able to say that in most cases, we don’t need to change the investment portfolios. Not that we are being complacent, far from it. Simply because prior to the crisis, we worked hard at adapting our strategies to the changing dynamics we were seeing unfolding across the investment world. Infrastructure and sustainable investments come to mind.
Yes, these assets did suffer like most equities, but their recovery has further reinforced our belief that our portfolios are well positioned. We have a global bias and focus on companies with strong balance sheets and good prospects of future earnings. We also hold companies that are innovative and are embracing change in their respective fields.
By comparison, the traditional holdings in the UK equity income space have suffered, not helped by dividend cuts. UK dividends are dominated by a small number of firms in some out-of-favour sectors like banks, oil and gas, mining and tobacco. Dividends around the world are under strain but UK dividends have come under more pressure than most.
The consequences of not adapting your investment approach
Should one’s money be invested in out of favour sectors, then this will likely have a long-term impact on your future planning. Less money generally means less choices.
We are concerned at the number of situations we have come across recently whereby investors might have a concentration risk, or they may be languishing in funds that have underperformed over a long period (Neil Woodford immediately comes to mind). In a significant number of situations, we also see holdings which we deem to be high risk, in a portfolio for an individual who is erring on the side of caution!
However, this isn’t just the domain of managed investment funds, it may simply be that an investor holds low cost trackers like in the FTSE 100. The problem here is that on price alone, the FTSE 100 has posted a negative return over the last 5 years of -8.51%. It’s saving grace was always the dividends but with pay outs being severely cut, the concentration of a few companies in certain sectors sets the alarm bells ringing.
Just because it’s cheap, it doesn’t mean it’s right!
Update on the markets
The last 24 hours indicates how vulnerable the investments markets are to the strains in the relationship between the US and China.
Overnight it was a volatile session in the US after Donald Trump’s chief adviser said on Fox news that the phase one deal between the US and China was “over”. This was then contradicted by Trump on Twitter sating the deal was “fully intact”. His adviser then said he had “been taken wildly out of context”. Equity markets duly responded and recovered their losses of the session.
This amounts to daily noise with Trump, but perhaps more encouraging was the comment of the CEO of Blackstone who made a statement about the US economy. He expects it to demonstrate a V-shaped recovery in the next few months, as a result of the trillions of dollars in central bank stimulus and improved sentiment that the virus will be contained.
European markets are pressing forward this morning with the Dax (Germany) up by 1.66% and the FTSE 100 by 0.72%.
Enjoy the cracking weather this week.
Gary and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.