Please find below our Market Update for the week ending 14th September 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Market data
Most markets have trended down slightly over the last week and this is largely due to the continuation of the issues that remain on the World’s agenda, namely trade disputes for the US and its partners, the ending of Quantitative easing which 7IM comment on below, and of course, Brexit. These are all huge structural challenges which would inevitably take time to resolve and as ever the markets dislike uncertainty. It is easy for us all to get caught up in the politics of these scenarios but as Warren Buffett famously said “ in the short term, markets are a weighing machine but in the long term, a counting machine’. What he was saying was that fads come and go but that a great company rarely becomes a bad company and value will be rewarded. In some ways, this is why the US market has been fairly relaxed over talks of Impeachment because companies and the wider economy are performing so strongly irrespective of political actions.
The positive resolution of some of the above issues will be helpful to increase confidence in markets. The US and China, though no date is set, will restart trade talks soon. At home, the EU have indicated a desire to get on with things and a Brexit deal is probably a little closer. Sterling reacted positively which is a good start.
The US continues to do well and as stated previously, we like this market and believe it still offers value in the right areas of the economy, smaller companies and technology. For the reasons mentioned above, we do not see the upcoming mid-term elections disrupting the flow of broadly good news.
In the UK, we had news of slightly higher growth than expected but whilst this is good, it is still a mixed picture. John Lewis released dramatically lower profits, but Morrison’s continued a strong recovery which has seen their share price double in three years. This trend in retail and other sectors is likely to remain until we know where Brexit is heading.
There is not a lot to report about Europe. The Swedish elections are probably the major news. We will wait and see if this new direction is adopted in other parts of Europe.
Elsewhere in the world, Emerging Markets remain very dependent on the strength of the Dollar which affects their ability to service and repay debt but as we have commented a couple of times, in recent weeks, we are very close to thinking this market, on a selective basis, looks good value. Trade talks and resolution is key here, so the more positive the language in talks between China and the US, the better.
Blue Sky’s market comments in conjunction with our investment partners
We are constantly looking for new opportunities, especially those with the prospect of adding something new to our Portfolio. In this respect following a couple of months research and company analysis we are adding Winton Absolute Return Fund to our Funds (no link to Bournemouth!). We see this as a hidden gem and are convinced it will add meaningfully to what we hold at present. The title ‘absolute return’ is a broad one but put simply, it is a fund designed to act differently to the main stream and hence be profitable most of the time. Their core strategy is to look at trends and adopt a very scientific approach to what they will invest in and in our judgement, they are a better alternative than many of their competitors. Winton can invest across shares, bonds, currencies and commodities and as such should be viewed as a real diversifier for us.
Elsewhere, we are happy with the make up of our Funds and continue to hold cash for new opportunities such as this.
We have completed our detailed analysis of the investments we hold, looking ahead to Quarter 3 and feel that we are well placed at present. There has been much talk of the long ‘bull run’ in many markets and with the removal of Quantative Easing would this continue. In many parts of the world QE remains, full throttle in Japan and still ongoing in Europe. It is only in the US that QE has stopped.
In the US, the concern is that interest rates are rising, but instead of seeing this as a negative, it could be deemed to be positive. Strong growth in company profits is, good news. In the UK, the Government would like to raise rates, but the fear of Brexit is likely to mean that we are left with the status quo. For these reasons as well as the lack of inflation in most of the developed economies, we see no risk of recession in the next two years and hence we remain comfortable with how our Fund is invested.
Sources: LGT Vestra and 7IM
