Our Investment Committee Meeting (ICM) took place last week.
At this meeting we decided NOT to make changes to either the asset allocations or the underlying investments.
Why have an ICM?
The purpose of our quarterly meeting is to review TCFP’s model portfolios. Taking into account the latest data available, we review all aspects of the portfolios.
This means looking at where the money is invested (the asset allocation) and how it is invested (the funds, ETFs and investment trusts that make up the portfolios).
We’re happy on both counts. We will keep this under review of course.
What did we talk about?
We’re waiting for something to happen. We don’t know what that thing will be, we don’t know if it will be an up or down thing and we don’t know when.
Regardless of what you might hear or read nor does anyone else. Beware snake oil salespeople.
When it does happen we may or may not do something depending on what it was and how much it was.
Particular points we discussed were North Korea, France, central banks and the US. Things feel more geo-politically than economically driven at the moment.
In (very brief) summary:
- How much longer can the Chinese allow North Korea to embarrass them thereby allowing the US navy to gather off their shore? Assassination anyone?
- Will Le Pen’s victory / defeat lead to a significant downtick / uptick? What event(s) will happen between now and the first round of elections?
- Ten years ago there was, basically, no significant market interference from central banks. A combination of QE, 0% interest rates and forward guidance kept a lid on volatility. Now there is no forward guidance, interest rates are rising and QE reducing. Expect more volatility, the timing of which is impossible to time.
- The US should see lower corporate taxes (down from 35% to 25%?) but it’s the wider “bonfire of the regulations” (including the denial of climate change) that’s the big shift over there.
We also discussed inflation and this is covered in full in its own blog.
With oil up and Sterling down there’s really no surprise that inflation is up. It is that simple. The bond markets don’t expect any sustained inflation.
To date we are still below the long-term UK average of c3%pa. We can expect to get there in the not too distant future. That’s no reason to run around screaming.
All our portfolios are on the defensive side in relation to the benchmarks we set. That means there’s plenty of low volatility cash and short dated gilts.
If there’s a dramatic fall (to be defined) then we may look to capture more upward market returns. This could mean looking more at emerging markets, small cap investments and, perhaps, Japan.
We would use some of the cash and short dated gilts for this purpose. We will not be going “all in” or anything like it.
Falls happen because there is a paradigm shift in expectations, the events above are, we believe, the most prevalent in this regard.
Falls do not happen because valuations are elevated / stretched / unsustainable.
Investors who acted on this basis using trendy ratios etc. would have come out of the markets in the late 80s. Or convinced themselves that “this time it’s different” (it never is in the long term).
Assuming they had taken their own advice they would, arguably, still be out of the market nearly 30 years later still waiting for investments to be “sensibly valued”.
Of course, we understand that they would have changed their “convictions” somewhere down the line to suit their circumstances (or motivations…).
Nonetheless, to demonstrate the idiocy of trying to time markets, since 1989 the US S&P500 is up 600% and the FTSE100 250% (more if you had received and reinvested dividends which run at 2-3.5% pa on top).
Not bad for buying a bunch of overvalued shares? What more would you have needed?
What are our hot tips?
There are none – apart from our standard, long running “ignore everything you read and hear from the gurus”.
No-one can predict the markets consistently or know what is going to happen or what it will mean for returns.
Just about every story you ever read about X was caused by Y is guff. Correlations exist but do not mean causations do.
What about the portfolios?
If you’re a TCFP client you’re set fair.
Your financial plan has been set up properly, you can withstand any short-term volatility. There is no threat to your long-term prosperity.
If you’re not a TCFP client and you’re being advised to move money here, there or anywhere because XYZ is indicating ABC then good luck.
You don’t have a financial plan you have a betting account.
That’s no way to secure your financial future but it is a pretty sure way to come a cropper.
As a TCFP client you’ve got a decent (low cost, tax efficient) spread of equities and bonds perhaps with some commercial property and commodities.
Your best strategy remains buying and holding and having enough cash available to ride out the inevitable rough patches.
You’re invested mainly in the UK but have exposure to the US, Europe, Japan and the wider global economy (aka everywhere). This is an approach that’s serving you very well.
We hope you sleep very soundly at night. Let us know if you’re not.
For now (and forever) we maintain our investment mantra:
Only have money invested to the extent that it can be left there through a prolonged downturn.
Everything else should be in cash. And it is, for all our clients, always.
020 7993 4898
advice@townclosefp.co.uk