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Investment Committee Meeting Notes, 8 December

The latest quarterly Town Close Financial Planning Investment Committee Meeting took place on 8 December 2020.

The TCFP Model Portfolio remains unchanged.

Here are the notes for those interested, authored by Mark Williams, one of TCFP’s Chartered Financial Planners.

It seems like a long time since our last ICM. A lot has happened, which we will get to, but importantly our strategy remains the same. We are looking for intelligent points in time to adjust the model portfolio by watching out for obvious market signals.

Being in the right asset class at the right time in the economic cycle is the most important element in delivering decent returns.

For example, rebalancing into equities from bonds at a time when the equities are well down makes perfect sense. We will return to this at the end.

The big events we discussed at our last ICM are still around. Those being the US election, Brexit and COVID.

That said, there have been developments since our last meeting so we will look at each in turn.

US Election
Who knew the process for electing a new president of the USA could be so complicated?

We now know far more about electoral colleges and the popular vote than ever before. The fact that each state has slightly different rules regarding postal votes and the count does not help either. What we are seeing is all the constitutional stuff being played out that we would not normally see.

What we know for sure that we did not know at our last meeting is that there will be a new president installed in January. Having said that, there will be no real majority in the senate. This will limit the control that Biden will have.

In terms of the impact on portfolios, we do not really see them being directly impacted by the change in president.

Whilst it is true that Biden may not be as good for the economy as Trump, it is also true that Biden’s plans have been broadly well received and he is surrounding himself with sensible people.

We are nearly there and by the next ICM we will be out of the EU and will finally know whether we got a deal or not.

As we sit here today, a no deal is looking increasingly likely. The 3 main sticking points – fisheries, rules on state subsidies and governance – have not really moved anywhere in 6 months.

Boris has gone to Brussels and there does seem to be some discord between the Germans and the French but whether that changes anything remains to be seen.

The important point is that a no deal is nothing to fear. As far as the TCFP portfolio is concerned, it could be a good thing because as the pound drops in value so everything in the portfolio appreciates.

Of the three events, this is the biggy when considering the impact on the economy. In March this year GDP fell by 24%.

Since our last meeting we have had some very positive news about vaccines, and they are now actually with us.

The further we get into 2021, the better things will get.

As vaccines are administered, so infection rates drop and there is less need for government intervention via lockdowns and restrictions which means we will be able to gradually get back to normal. Certainly from May onwards we would expect to be in a totally different place from today.

There may prove to be some positive benefits to the economy such as increased productivity as people continue to work at home and get more done due to less time spent travelling to and from work. Utilising technology such as Zoom will also help in this regard.

TCFP Model Portfolio
Returning to our portfolios, the immediate outlook for stocks look good. As we mentioned earlier however, you need to be in the right stocks at the right stage of the cycle.

Generally whilst in the recovery phase it is emerging markets and small cap stocks that perform the best. For this reason, we would expect our next move early in the new year to be to increase the holding of both small cap and emerging market stocks. Watch this space.

The final area discussed was interest rates. With a no deal looking increasingly likely, there has been talk of negative interest rates. That said, this is more likely to impact business customers. To be clear we would not expect retail bank customers to have a negative rate although it could be very close to zero.

The meeting then closed. The next one will be scheduled for March 2021.




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