Last week I was sunning myself and the kids in Turkey and I must say that it was a well needed and enjoyable holiday. Please do not be concerned though even when I am away I am watching as is my team and the volatility was not unnoticed as we will talk about more below.
My euphoria was abound though on Tuesday, when I returned, to hear that my beloved Manchester United had removed the incumbent manager and had finally seen sense. As a result of this change some would say that a block on global optimism and gloominess based on everyone loving Manchester United, had been removed and the global stock markets will rally.
Others will say that I am delusional and the fact that the markets rallied on Tuesday has nothing to do with Manchester United. They may be right, but what did happen on Tuesday is that markets rose as optimism spread through that we have finally transitioned into a period of normality, and even though the issue of Ukraine and Russia as well as China is weighing heavily on markets, there is a growing sense of optimism that we are returning to some sort of normality.
Over the last week, the volatility in the markets has continued, but this is caused by geo political issues that are as yet not having an effect on the global economic positioning we have taken and for that reason we continue to be tactically overweight equities. This may hurt us over the coming weeks but over the coming 3 months we believe that being overweight equity will be rewarded.
To that end we have taken advantage of the recent lows in the markets and increased the tactical weighting within our portfolios to trade around value opportunities which we have identified in Emerging Markets and Gold Mining equities. This position is however a short term position and restricted to 7.5% of the portfolios.
Our Year to date performance figures for the focus 6.5%, 8% and 10% portfolios are 1.92%, 1.49% and 1.71%, outperforming their respective benchmarks and indices. We have though lost some ground over the last week which we believe will be returned over the coming weeks and months as the Ukraine situation does not become a significant market event.
To summarise, we remain positive regarding equity markets and continue to see value at these levels. We expect markets to rebound in to May and our portfolios are positioned to take advantage of this.
Equity vs Non-Equity
One of our reasons for being bullish is not just because the evidence is abound that equities are the place to be, it is because most investment managers would agree that it is becoming increasingly difficult to find non-equity assets that are offering any value.
It is believed that yields will continue to rise over the coming years as global policy rates are at all-time lows. Therefore, the only way is up and interest rate risk will have a negative impact on most non-equity assets. This is because non-equity valuations move conversely with yields.
The below graph emphasises this point and shows the returns of Gilts, Corporate bonds and Property assets over the last year, compared to equity indices from the UK, US and World markets.
Total Return Bid-Bid line chart over 12 months (from 24 Apr 2013 to 24 Apr 2014) from UK IMA universe
As it can be seen from the above, it is becoming difficult for any value to be derived from being invested in non-equity asset classes and we believe that equity will be the driver of growth going forward.
As a result, we have positioned our portfolios with this in mind and are currently underweight in non-equity assets to allow us to take advantage of perceived growth. Our focus is always on being invested in the right asset at the right time. We are therefore happy with being overweight in equities for the short term and will keep you updated as and when we make changes.
On a closing note I am looking forward to watching the dream team of Giggs and Scholes (plus the other two) putting a team together against Norwich that makes sense and plays like the beautiful team should.
PS for those that cannot hear the northern in my accent or tone of writing I was born in Bury so I am technically a Manchester boy, as well as a glory hound.
Have a great weekend and if you have any questions please ring me or a member of the team.
CIO & Founder