Commentary, January 2018 UPDATE


Since I wrote these notes a mere two weeks ago the period of low volatility has come to an abrupt end. Equity markets are down high single to low double digits from January highs as of 9th of February. Whilst timing such moves is nigh impossible our view is that the correction is long overdue. Whilst equities, as a naturally more volatile asset class, have borne the brunt of the selling the genesis of the sell off has been in the fixed interest market as recent inflation data and hawkish statements from Central Bankers have awakened investors to the reality of the period of near free money coming to an end globally. Indeed government bonds have suffered declines of 2-3% at the 10 Year duration and Property is also off the top.

Fixed interest markets are still very expensive by historical standards and over the next few years I expect them to continue to deliver negative returns, as they have since July 2016. There will be episodes of contra trend strength based on the ebb and flow of economic data but the trend in yields is up from levels that were the lowest in centuries. Robots et al may mean the level is lower than prior peaks but these are slow moving trends and won’t offset the cyclical pressures around the globe.

We have used the correction to buy into some unloved areas e.g. UK domestics and Japan value as well as a European Income fund.

We have put about 6% of our cash to work this week and are glad of the opportunity to buy at good prices after some of the froth has come off. We continue to have above average cash as we still don’t like bonds and we want to retain more ammunition to respond to further bouts of volatility as they arise, as we are sure they will. This is merely a return to normal, as we have intimated before, after an extraordinarily becalmed period.

In essence we are going to stay calm whilst, as always, actively managing your portfolio.

You can download the full, updated commentary here

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