Is 2018 the year of volatility?
2018 started off with a great deal of positive investor sentiment pushing global financial markets higher and higher. At the same time as two of Elon Musk’s Falcon rockets landed safely at the beginning of February, the positivity changed, the markets fell significantly, and volatility increased. That was almost a month ago now and the markets are generally up to 10% lower than they were at the start of Feb 2018 at the peak. We are though starting to see some stabilisation again and momentum is showing signs of buyers coming in at the end of the day which is always good. It has been a volatile period and one that was the first wobble of 2018, and maybe a sign of something more sinister to come later in the year, that has made Investors nervous. The volatility we have had though started because of bond yields spiking as previously written about whereas this weeks volatility was caused by Donald Trump starting a global trade war by imposing tariffs on steel imports.
Risks have risen clearly, and, in some respects, these are in some areas getting bigger as the US President’s decision to slap blanket tariffs on steel and aluminium imports has raised the risk of a full-blown trade war. Risk will increase if it leads to tit-for-tat response that lead to a bout of protectionism globally, as it will weaken international trade conventions, notably WTO rules. For markets, this is the sort of dynamic that can bring the worst of all worlds – lower growth but possibly higher inflation if production migrates gradually to high marginal cost environments. We aren’t that pessimistic though as we see the direct impact of Trump’s measures on the global economy as unlikely to be significant, but an escalation is possible, and limited reprisals are looking quite likely, but in the absence of a full-blown trade conflict, we remain bullish on risk assets, albeit our optimism is being tested.
Despite this weeks Trump Trade Tantrum and the fact that we are ignoring the Italian elections because really” what is there to say!” economic data remains strong globally and the markets are ending the days positively, which is always good for momentum and the fact that buyers are buying later in the day.
For anyone who wants further data to substantiate the position please review the attached Global Economic News Document.
Model Portfolios & Indices
Over the last week we have seen most of the indices that we track have yet again been on the low down, as investors are cautious of the economic cycle and Trumps trade war has seen protectionism rise and therefore risks increase. As a result, all our portfolios were negative in varying degrees but as usual less than the indices as regards to volatility. Volatility is being managed though and risks monitored, and we are happy that the portfolio compositions are balancing the downside risks with the desire to get back to positive returns YTD. Given the level of risks in the markets, with both equities on edge and bond yields being tested, our portfolios are holding up relatively well and we will maintain our strategy of low equity allocation in the portfolios.
This will protect your capital with regards to what’s currently happening in the financial markets and we will closely be watching the markets to see when there is a potential buying opportunity. Regardless we are confident in our strategy given the mandate of OBI which is to cyclically adjust the portfolios based on the economic climate.
The data above will not directly correlate to the indices as there is always a delay in pricing because the US markets close significantly later than the European markets and the Asian markets. The data set above reflects the last close and much of the days movements will not yet be reflected in the portfolios due to pricing delays. You cannot therefore directly correlate indices to the portfolios. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guarantee of future performance. Performance figures quoted include the fund manager charges but exclude other fees such as adviser, custodian, switch and/or discretionary investment management fees. Unless otherwise instructed and accrued, income is reinvested into the portfolio.
This Day in History
On this day in 1876, Alexander Graham Bell the Scottish-born scientist, inventor, engineer, and innovator who is credited with patenting the first practical telephone and founding the American telephone was born. As always have a wonderful week and stay safe.
Jason Stather-Lodge CFP, MCSI, APFS
CEO & Founder
Chartered & Certified Financial Planner
Chartered Wealth Manager