| Investing perspective
As Independent Planners/Advisers who consult with investment clients, we always talk about ‘time in’ the markets – ‘timing’ is guess work – which can take too long to develop if an investor is waiting for a crisis and entry point to present itself. We want to cover a number of points of consideration for investors to think about based upon the current market positioning in this article. History provides the detail of deep economic impacts – leading to financial market crashes which develop at least every decade – but often there are years of growth, such as the last decade of a Bull Market, before the Covid-19 economic and market crash. For long term investors it therefore becomes logical to invest at market lows so the benefit of ‘time in’ and ‘timing’ can best support the purchase of an asset for the long term. One could present an argument that the markets are presently low, certainly on an historic basis – but may have bounced too strongly given the economic reality. The question is always – when we are in the depth of the crisis -” How much lower could the markets go?” Generally, investors have a ‘desire’ to invest in order to provide for a ‘need’ – such as inflation beating growth or the delivery of income – in excess of what cash deposits can provide, which has been little over the last decade and will be non-existent for years to come! Investors generally invested in assets – with a long term view – so if an investor placed capital into assets just prior to a recession or bear market, over time the capital recovers and grows; sometimes, like with the Covid-19 crisis, there are no indicators to heavy falls so the ‘timing’ of the investment can be simply bad luck. Other investors can be on the other side of the ‘timing issue’ where opportunity knocks loudly…… Those who invested during the lows of March/April have seen rapid growth (to date) so, at this point, ‘timing’ has assisted those investors. In normal times economies growth through human endeavour, technological advances – which lead to improved productivity. As society becomes more successful, we spend more, invest more and consume more. This type of economic environment translates with faster/increased profits, dividend growth – boosting asset prices. Clearly the health concerns remain so the economic path is less than clear at this point. In a recession, society tightens expenditure leading to a slump in growth, investment and profits – reducing asset prices. Capital Markets are forward thinking and not living in the ‘here and now’ of the economy – but are always susceptible to changing news flows and become ‘jumpy’ when asset prices are inflated. Equities often over discount both the growth phase and down turns, exaggerating the movements in the underlying economy with large movements in share prices where, in certain circumstances, bonds behave akin to equities. Background thinking
Most investors are becoming familiar with the expression ‘The Fed Put’. This is the notion that the stock market can only fall so far before the Federal Reserve steps in to support the economy with monetary policy action – leading to investment markets feeling more confident before the delivery of actual results to the markets via companies. Take a close look at the main indexes that UK based investors are likely to focus on – and understand (over 1 year).
Looking at the 12-month view of the various indices, it’s simple and easy to see that the tech heavy indices have out-performed, where this is not simply down to the ‘Fed Put’. The older view of tech stocks (memories of the dot.com bubble) have faded – now seen as the new defensive sector with fortress like balance sheets and a ‘label’ for leading companies – FAANG (Facebook, Apple, Amazon, Netflix, Google/Alphabet) As the markets become spooked – a tumble develops in this time of crisis, and it’s not long before the mega cap tech stocks start to rally so investors are watching hard for pullbacks and investing when dips appear. You may have read about the Tax concerns of a number of the large Global tech stocks where France is currently looking to apply a tax levy on tech based upon the consumption in the country. Could this issue lead to a reduction in valuation? The USA are retaliating suggesting that wines and luxury items, such as handbags, will suffer import taxation. The ‘Fed put’ may also be providing further extension to Zombie Companies – as stimulus and support extended to corporates that are barely ‘alive’ allows the delay to inevitable Bankruptcy. The markets are therefore certainly a ‘stock pickers’ market as the indices cover and includes a multitude of sins. Investment Market and Economy Disconnect
Click the link to read further about the Disconnect: https://www.bestpricefs.co.uk/blog/the-widening-economic-investment-market-gap/ It is clear that the investment markets were ‘essentially’ supported by policy, although the Central Banks’ first priority is to deliver economic support/stability which, in turn, develops into investment market support. Concerns For those who follow the investment markets in detail, many experienced/successful investors are seeing the market rebound as overheated. The globally renowned investor – Warren Buffet – exited the airlines and banking positions at losses a couple of months ago, stating that he could not identify price/asset opportunity; so is he seeing something the markets don’t? Sometimes, like a faulty watch, a prediction unfolds…. It would be foolhardy to think that the current crisis recovery will be quick and predictable. Professional job of work
The professional role of an Independent Financial Adviser is not to make calls in relation to investment markets – we are not that clever – actually, no one is! We must deliver a suitable investment outcome – this does not mean producing X% return. Simply explained, this means fully understanding an investor’s financial position, the construction of assets inside tax wrappers – such as Pensions, ISA and Collective Investment Accounts, giving due consideration to the income and capital position of the investor – focusing on Risk Tolerance, goals and aims (needs) and capacity to suffer capital loss. Adding Value
Independent financial consultancy requires in-depth knowledge, living and breathing the role and our clients’ needs – making sure the investment risk taken is suitable. Fortunately we are extremely passionate and love the job we do so delivering ‘added value’ for our clients comes naturally, as we find the work interesting (always) and fun – although the times of crisis are stressful, naturally. Asset Allocation – Risk Management
The outcomes of investment markets are never certain. If an investor is focused on risk assets and risk assets become damaged and are slow to recover – a poor outcome develops. We fully recognise that each investor has individual and specific needs so we must cater for all and certainly do not ‘shoehorn’ investors/clients into investment solutions. We provide Risk Adjusted Portfolio management and bespoke portfolio consultancy – never one size fits all. The Starting Point Understanding an investor’s circumstances, objectives (including time horizons for investing) and experience are the essential starting points. We are able to conclude a professional, regulated suitability recommendation from the Fact Finding/Risk Profiling and cashflow overview. Our investment recommendations are generally diversified across sectors, geographical regions and asset class, although some higher risk investors are focused on risk assets but use our consultancy service to appraise selection and gather informed opinion in relation to supporting DIY activity. Some investors are happy to make mistakes themselves but consult with us when the penny drops – and they realise a professional approach is a better approach! Our Independent title is extremely important as we are able to provide advice across all sectors and products without bias – in a totally agnostic way – as we get paid to deliver suitable outcomes not selling a fund or product solution. Asset selection We endeavour to populate our investment solutions to our investment clients with the ‘best of breed’ asset solutions available and review and report to our clients regularly. We like blending a range of quality assets, including Structured Investment and Deposit Products with our investors – adding Alpha by contract – looking at the contract merit, rather than only the coupon. Review We are currently in the depths of carrying out an enormous task with clients – during this time of crisis. Providing updates to our clients and covering off ‘ongoing suitability’ while being a huge job in a relatively short timeframe is tough; we are finding that the benefits are likewise considerable to both parties. Client benefit The Covid-19 crisis has created a number of seriously worrying issues – namely and mostly health related to our client demographic. Taking the time to reconnect with the basics of liquidity, goals and investment time horizons is essential so, given the delivery of the results (to date), no one has expressed the need or desire to make major changes to their longer term views – although strategically one or two have positioned in line with their personal thought process – related to the crisis. We are currently carrying out a tactical and strategic repositioning of assets held following the reviews with clients. Adviser benefit Knowing our clients are reassured and re-briefed in relation to the processes of advice and to ‘think’ further about the considerations they may wish to consider for the long term. We are likewise ‘reassured’ that our clients remain ‘on track’ – although Covid-19 has derailed the Global Markets. We, of course, like our clients to recommend us and introduce our services to quality clients for the future. Conclusion There are as many negatives as positive investment market views at present. The major upside will develop from a vaccine – as sentiment will produce a level of euphoria – until the reality of the economy and geo-political issues reconnect. The excessiveness of traders (clearly inexperienced) trading bankrupt shares, such as Hertz – where the asset is unlikely to provide any value to the holder once concluded in court is clearly gambling – as the ‘race’ maybe concluded before the asset is sold – this activity may have provided some sort of fuel to the markets – so we must all be mindful and take a balanced view of the markets at present – focusing on your personal circumstances and needs. As always, we want to make sure that our clients are in the correct position to deliver to their needs. Are you best placed at the Bestpricefs? If you require advice, simply get in touch. Stay Healthy. Best Wishes Richard and the Best Price FS Team |
