The latest quarterly Town Close Financial Planning Investment Committee Meeting took place on 27 September 2020.
The TCFP Model Portfolio remains unchanged
Since the last ICM we sold the equities we bought at the end of March at a profit, returning the portfolio to a more neutral position.
The process for TCFP obtaining discretionary investment permissions is ongoing. We expect FCA approval in October and for new Client Agreements to be issued in November.
Reflections on the year to date
There has been plenty to reflect on since February/March. Here are a few of our thoughts, most of which you have probably heard before, for good reason:
- No amount of economic study or market forecasting can prepare us for dramatic events.
- Those events always come from nowhere.
- Trying to make investment strategy out of “expert” prognostication is doomed to failure.
- Yet many persist.
- We prefer a long-term plan we stick to through all fears and fads.
- This keeps us on the straight and narrow and helps us to avoid sudden emotional decisions.
- Equity markets bombed quicker than they ever have, but the depth of the drop was about average – exactly what we’d expect every five years or so
- And every time the declines have not lasted, the long-term advance always reasserts itself.
- That has happened, more or less, globally and in record time.
- That’s because equity markets most often resume their advance way before the economic picture clears.
The overwhelming lesson this year is that the market cannot be timed. You, as a long-term, goal-focused investor are best advised to just ride it out. Happily, that is exactly the policy we have been helping you follow.
This year validates your approach of listening to and taking our advice. Well done on sticking to your plan.
In general
The recovery is under way, we might yet slip back into recession, but the outlook is good. In the UK we expect record breaking growth in Q3.
Event risks (pandemic, Brexit, the US elections) abound, then again event risks always abound.
We expect market volatility to remain and winter to be nothing less than paranoid.
This may, or may not, present us with another opportunity to buy some cheap equities by selling some expensive bonds. And then reversing it as we did earlier in the year.
We think the chances are 50:50. There is no science in that number, we are just sitting on the fence, knowing we will be right either way….
Brexit
The UK and the EU have until the end of the year to agree a deal, or not.
The markets see a 70% chance of “no deal”, the figure changes but the expectation has always been “no deal”. In that event sterling should fall which will boost the overseas returns the portfolio receives.
As far as we can see the UK asked for the same deal as Canada. The EU (led by France) told us to “do one”. Their main demands relate to fishing and State aid.
The EU do not expect to fish in Canadian waters nor tell the Canadian government which industries they can and cannot support. The EU expects to be able to do both with the UK.
Losing strong trade links with the EU will be a blow for both sides, but at least the UK would then have the chance to trade elsewhere on their own terms. It is either that or curl up in the corner and die.
Our view is that Boris is correctly looking out for the UK’s long-term interests if he sticks to his guns. And that means ensuring that the UK has enough flexibility to pull the levers it wants to boost our economy.
Have no doubt that these negotiations are entirely political, there are no economic considerations at this juncture, and that the UK’s negotiating position with an 80-seat majority is strong.
Whatever happens the portfolio is set to “neutral” on this matter by virtue of being invested globally. The UK and EU’s loss are the rest of the world’s gain.
US elections [Trump’s positive test occurred after the ICM]
Biden is ahead in the polls and with the bookmakers.
The result is irrelevant to long-term investment returns. American companies will adapt their behaviours to accommodate and continue to make profits to share with their investors.
A Trump re-election would be a positive shock for markets and the portfolio.
What the market really fears is a deeply contested election that ends up in various courts. Time will tell.
There are no investment decisions to be made off the back of this.
Covid-19
Day by day we know more and are closer to a vaccine. The current hysteria and policy response are less than helpful in our opinion.
Coronavirus feels more and more like a known unknown. We are managing it better and the survival rate has improved. Although cases are on the up, the death rate is dropping and we have better data.
Human history is littered with major shocks to the system, and each and every time we absorb and adapt. This time is no different.
And that was the meeting. The next one will be in December.
future proofing your finances
advice@townclosefp.co.uk
Town Close are expert financial planners. Our goal is the same as yours – to help you do the things that are important to you in the time you have remaining.