Archive | June, 2012

The Greek Election

18 Jun



Greek Election Dilemma

Greek political parties supporting a bailout for the country have won a slim parliamentary majority in Sunday’s elections. Any coalition’s majority is set to be narrow and may lack the stability needed to push through painful reforms.

Whatever the outcome, Europe’s problems are far from over as the debt crisis threatens to further engulf the larger economies of Spain and Italy.

The markets are expected to gain from this calming (huge relief) of the markets – understandable given the massive fallout that could have happened had the (pro-bailout) New Democracy Party lost.

The Greek conservative New Democracy party and Socialist PASOK, who broadly back an EU/IMF bailout package keeping Greece from bankruptcy, looked set to jointly secure a slim majority. SYRIZA, the leading leftist party that pledged to tear up the terms of the bailout package, conceded defeat.

If there is any sign of market stress on Monday morning, investors will look for action from the world’s central banks who, according to officials, stand ready to intervene if trading becomes turbulent.

Official results released by the interior ministry, with 97% of ballots counted, showed New Democracy taking 29.7%, SYRIZA 26.9% and the PASOK Socialists were set to take 12.3% of the vote.

The Greek election system awards a 50-seat bonus to the party which comes first, that would give New Democracy and PASOK 162 seats in the 300-seat parliament.

Supporters of New Democracy.


What Next ?

G20 leaders kick off a two-day summit in Mexico on Monday and the rest of the week is not likely to be any quieter.

The Federal Reserve is due to release a policy statement on Wednesday at the end of its two-day meeting, and the steady flow of sovereign debt warnings and downgrades is likely to continue.



Now That’s What It’s About!!! – Article Removed

14 Jun


I have had a discussion with my wife who took the article totally a different way than I had meant and I worry others would do likewise.

I am not someone who brags or talks about the great I am.

My mantra is to understate as the only thing that matters are the people – my family, my friends and my clients.

So to anyone who read the original article – all I was trying to say was how proud I felt that through my endeavours my clients have been able to live the life they deserve.

Please forgive me if it came across as arrogant or bragging – that was the last thing it was meant to be.

We’re Readay For A Rebound?

13 Jun

It’s fair to say equities look cheap and logically are the only sensible choice. This is in contrast to government bonds which are offering yields trending lower, with very overstretched capital values and further monetary stimulus remains a real possibility.

If we agree with PSigma’s chief investment officer Tom Becket then we could be on the cusp of making significant gains as a market rally is imminent. 

The risk is the Eurozone is possibly on the brink of collapse and so a market collapse is seriously possible. We have seen many investors selling investments and turning to cash and other perceived safe havens. This sell-off has left some equities at bargain prices, assuming the Eurozone does not implode. 
Even some of the most bearish commentators have highlighted recently that some cyclically adjusted price-to-earnings (P/E) ratio is back down to rock-bottom valuations. This is consistent with the bottom of previous long-term valuation bear markets. 

S&P 500 & VIX – Weekly

We are and will be in volatile times but if this theory is correct then patience will be rewarded over time.
I also do not believe that policy-makers will sit by and allow the global economy to fail. It has been well documented by many of the concerns of the “contagion effect” of a serious failure in the Eurozone. The likelihood is this would have an effect on the US, Asian, Emerging and Global Markets –  leading to an international catastrophe.
We have previously seen the assertiveness of nations to take action to prevent these scenarios becoming reality.
The only issue is the markets over recent years have many times surprised investors with actual unexpected outcomes.
In addition, the Greek election on June 17 and meeting of the US Federal Reserve on June 20 could be pivotal to the market direction.
With sentiment currently dreadful, with the popular press and 24-hour news services at least partially responsible for creating the wave of uncertainty, this could be a great opportunity. It is not uncommon at turning points in an investment cycle and investors should take a degree of comfort from the air of negativity, as often this provides a buying opportunity. In addition, it seems that ownership of equities by both professional and retail investors has fallen to extremely low levels and so it may be fair to suggest there are few sellers left to drive prices much lower.
My belief is the best time to buy is when appetite for risk is at its lowest!

Market Outlook On Monday June 11 – Correction

12 Jun

Dear All

Apologies – I had referred to the FTSE 100 closing on Monday June 10 at 6,432.37 but should have been 5,432.37.

This has now been corrected.

All the best

Darren Nathan

Market Outlook On Monday June 11

12 Jun

You can never take things at face value. 

Contrary to assumptions being made just a couple of weeks ago after a nasty tumble for stocks, the market rallied strongly last week and managed to recover losses from the previous month.  The markets are still seriously lower than values from the end of April/beginning of May.

So what does this mean? I think it is a bit early to tell if this is the start of a bull run or just a pause before further market contractions. Remember, currently trading volumes are poor and have been quite low the last few weeks.  Next week’s move could be lower just as easily as higher.

Personally, I think the current market sentiment is pointing towards being bullish, so we’ll assume a positive bias until we have a reason not to.

Economic Calendar

Factory orders (for April) as well as productivity (for Q1) were also both down.  This is something we need to watch for now.


  • Retail sales for May are expected to be anemic. With such low expectations, even slightly good news could lead to a nice move higher. 
  • May producer inflation figures.  The pros think we’ll see inflation will fall by 0.7%, but on a core basis (excluding energy and food), it should actually rise by 0.2%


  • Consumer inflation numbers. Again expecting tepid results.


  • May’s Industrial Productivity and Capacity Utilization numbers – again expected to be nondescript. These numbers are critically telling of the market’s (and economy’s) overall health i.e. as long as they’re rising, things are ok.

There’s a serious concern that the current slow-down is a precursor to full-blown contraction.

Stock Markets

OK, the FTSE 100 gained +3.3% since June 1 to close at 5432.37.  The question is, of course, is there more bullishness in the cards, or was last week just the result of some extreme volatility?

It’s still too early to say with any meaningful confidence.  Unpredictable swings HAVE been the norm for a while, so it wouldn’t be unreasonable to expect the bears to push back now . In the grand scheme of things though, the bulls have the edge, so we’ll adopt the “trend is your friend” approach until we have a clear reason not to.


Chart forFTSE 100 (^FTSE)

VIX Index

All that being said, there’s a nagging reason why it’s possible the bears have some unfinished business to take care of.  See the CBOE Volatility Index (VIX). Though it moved lower last week as the market moved higher, its key floors are still under it, at 20.0.  The VIX will need to start pushing under those lines and start a new down-trend if the market rally is to have any longevity.

The VIX hasn’t even come close to reaching the peak levels around 48 that brought about ‘the’ bottoms from 2010 and 2011.  That’s not to say that the summer of 2012 has to be a copy of prior years’ summers, but one has to assume a pattern will continue repeating itself until it’s clear that it won’t.

Chart forVOLATILITY S&P 500 (^VIX)

Yet, it’s the same weekly chart with which the bulls could argue the 200-day average line as well as the lower 20-week Bollinger band did their job by acting as a floor over the past two weeks, sparking a rebound.

And therein lies the rub…. both sides of the table have decent arguments.

Given all we see here right now, we’ll side with the bulls for now and assume the market still has a fighting chance.

Remember, when investing, be careful but not too careful – and happy investing

My contact details are :- tel 029 2020 1241, email, linkedin welshmoneywiz, twitter Darren Nathan

Ways to Maximise Your Income Returns

11 Jun

I have been giving the problem of poor returns on cash considerable consideration. So what do you do if you need a realistic income yield from your capital?


Equity Release 

I am anti this approach as this is simply raising a packaged loan secured against your home where you receive income in exchange for part of the value of your house and/or potentially an escalating loan that will need to be repaid one day.


Structured Products

Income Deposit Plans are typically 6 years in length and pay, say between 5% & 7% per annum depending on terms and qualification requirements i.e. pays this on a quarterly basis as long as the FTSE 100 remains between 4,500 & 7,000 or +/- 21% of the initial underlying level with the level expanding +/-6% every year

Deposit Plans are typically 3, 5 or 6 years in length and may pay at maturity up to 17%, 28% and 50%, respectively.

The actual terms need to be reviewed carefully and suggest professional advice is required.


Fixed interest funds

These include :-

Corporate Bond Funds – M&G Strategic Corporate Bond (yielding 3.6%), Threadneedle Corporate Bond (yielding 4.2%),  Close Bond Income Portfolio (yielding 3.5%) and Fidelity MoneyBuilder Income (yielding 3.9%)

Strategic Bond Funds – M&G Optimal Income (yielding 3.9%), Jupiter Stregic Bond (yielding 5.4%) and Fidelity Strategic Bond (yielding 3.2%)

High Yield Bond Funds – Threadneedle High Yield Bond (yielding 8.0%), Baille Gifford High Yield Bond (yielding 6.3%), AXA Global High Income (yielding 6.5%) and Kames High Yield Bond (yielding 6.4%)

– all are above at least 1% more than the best cash ISA rates. 

It is important to remember that the capital value of bond funds will trend to follow the sentiment and expectations of the wider economy to a greater or lesser extent. It is expected that a good fund manager should be able to hold the payout if further turbulence lies ahead. 

If you are willing to accept a greater capital volatility, you could look to equity income funds. Please remember that you are focussing on payouts rather than the day-to-day capital value movements.

These include :-

UK Equity Income Funds – Invesco Perpetual High Income (yielding 3.9%), Trojan Income (yielding 4.3%) and Fidelity MoneyBuilder Dividend (yielding 4.8%)

UK Equity & Bond Income Funds – Ecclesiastical High Income (yielding 4.7%), Jupiter Monthly Income (yielding 5.1%) and Close Brothers Diversified Income Portfolio (yielding 2.4%)

North American Income Funds – JPM US Equity Income (yielding 2.3%), Jupiter North American Income (yielding 1.7%), Legg mason UK Equity Income (yielding 2.4%) and Neptune US Income (yielding 4.4%)

Global Equity Income Funds – Newton Global High Income (yielding 4.8%), Invesco Perpetual Global Equity Income (yielding 3.3%), Aberdeen World Growth & Income (yielding 4.6%) and Baille Gifford Global Income (yielding 4.5%)

Emerging Markets Income Funds – UBS Emerging Markets Equity Income (yielding 5.7%)

Asian Income Funds – Newton Asian Income (yielding 5.1%), Schroder Asian Income (yielding 4.7%), L&G Asian Income (yielding 5.3%) and Henderson Asian Dividend (yielding 4.9%)

With Equity Funds :-

  • It is important to focus on funds with a good track record of performance and payout growth
  • Payout growth doesn’t have to mean every stock in a fund must grow its yield. (A significant proportion of growth in dividends comes from businesses “normalising” dividend payouts.)
  • There are some outstanding UK equity income funds, but to invest solely in the UK is to miss out on some fantastic potential globally.
  • It is expected that the greatest investment opportunities may lie in Global and Asian markets.
  • There are also companies outside the UK who may have less debt on their balance sheet and some fo the regulatory changes will encourage higher dividend payouts.

Investors may be avoiding Asia and Global markets because of perceived risk but it is clear they could be missing out or at best limiting the diversity of their portfolio.

My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

Spain – Eurozone Bailout Agreed Over The Weekend

11 Jun
IMF: Spanish banks need 40 billion euro buffer

Spain has asked the European Union for up to €100 Billion (£80 Billion) to provide a capital buffer for the nation’s ailing banks. On Saturday, the Eurozone Finance Ministers agreed help Spain shore up its struggling banks and to lend up to €100 Billion.

The announcement came in the wake of an International Monetary Fund report issued late Friday saying that several banks in Spain would need to raise capital buffers by a total of €40 billion (£32 Billion) to withstand another financial shock.

Eurozone officials are eager to resolve the issue before the Greek Election on June 17, which could present another major turning point in the long-running European debt crisis. The US and the International Monetary Fund (IMF) have welcomed the move.

The rescue package is expected to speed up the flow of credit loans, with the goal being to help the Spanish economy recover by recapitalizing insolvent banks so that those institutions can begin lending to companies and families.

The Spanish economy looks bleak for the near future with the Recession in Spain seeing the economy expected to shrink by 1.7%.

Source of the Funds – the money is expected to  come from two sources – the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), which comes into force next month and will be formally requested at the next Eurozone finance ministers’ meeting.

The problem being that investors have recently demanded higher and higher yields to lend to Spain. This has made it too expensive for the country to borrow the money needed for a bank rescue from the markets. The loan will be provided on very favorable terms. The conditions will only apply to banks and not the government, as Spain has asked for help with its banks, and that it has not requested a full-blown bailout.

The deal is believed will help calm investors’ sentiment as it is a clear signal that the Eurozone takes decisive action in order to calm market turbulence and contain the contagion. This is hoped will help to put Spain on course for economic recovery and will assist with regaining investor and market confidence leading to necessary conditions to see a return to sustainable growth and much-needed job creation.

The Counter-Argument being – Will it be enough? And will the loan be sufficient? 

The thoughts of some economists is the loan is still only prevention rather than cure. It will only have the effect of keeping the banking sector alive rather than really helping to resolve the issues and so leading to sustainable growth.

On Saturday, IMF managing director Christine Lagarde said the plan for Spain should provide “assurance that the financing needs of Spain’s banking system will be fully met”.

US Treasury Secretary Timothy Geithner said it was “important for the health of Spain’s economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area”.

My concern being – global risks may be on the rise again. The Eurozone crisis continues to be the most immediate and most pressing threat, and there is the risk that conditions could get worse. A prudent and proactive investment strategy, diversification through asset allocation and product selection will help ease the situation and is planned to lead to a profitable outcome.

My contact details are :- tel 029 2020 1241, email, twitter welshoneywiz, linkedin Darren Nathan

Volatility Creates Opportunity For The Canny Investor

4 Jun

Much of the current investor related correspondence is about reducing and avoiding volatility, with the industry focusing on what they believe the consumer wants – smoothed returns and minimising market peaks and troughs.



Volatility increases as prices fall, volatility decreases as prices rise


The general sentiment is good as long as we take advantage of the lack of perfect knowledge and the implication of volatility. The market due to forces either over- or under-states the financial situation leading to spikes in the market and troughs. In recent times seeing a drop of over 10% followed by a rally of similar magnitude has become a common feature.

The problem being – is there any true and real headline growth? Well in the current climate this may not be the case especially if you follow the view that the top of the market was in December 1999 and since then we hae seen ups and downs but the ups have not reached the sam highs – so true longterm headline growth may not be on the radar in the near future. 

There is an alternative argument: in flat markets, with minimal economic growth on the horizon, volatility is the only way investors can make money. Can volatility be an investor’s ally?

Certainly volatility is not necessarily everyone’s idea of risk – risk for the majority of investors is losing money – and although volatility tends to rise in falling markets, a lot of volatility may also be seen in sharply rising markets. As a result, there are a number of investment strategies that benefit from just such a rise.

Given volatility is the largest component in options pricing, any fund strategy that makes use of options can benefit from an increase in volatility. Schroder Income Maximiser is a case in point, a fund that sells covered call options to enhance the yield of the fund. As volatility creates more uncertainty on asset pricing, people are willing to pay more for those options. This means the managers can improve the yield of the fund to a greater extent than they could in flat markets. 

Historically, a number of absolute return strategies may also do well at times when there is lots of volatility, rather than if markets are strongly directional. Standard Life’s GARS Fund ticks this box.

In the long-only world, markets driven by fear and greed create opportunities for contrarians – like Investec’s Alistair Mundy – who take advantage of market mispricing to buy into a stock’s recovery.

Another trend European investors are picking up from the US is volatility-based products that, in theory, benefit from market volatility directly. They are often simply ETFs based on the main volatility index, the Vix. While these should provide the perfect way to profit from volatility – the investor makes money as market volatility rises – problems with the way the Vix is rebalanced have meant significant tracking error on some of the funds.

Straightforward derivatives can also help investors profit from volatility by buying additional market exposure when markets have fallen or market protection when they have risen. Overall, perhaps the most important strategy to take advantage of volatility is to remain active. In markets that are flat, but volatile, as they are at the moment, a buy-and-hold asset allocation strategy is almost guaranteed to deliver poor returns.


Personally, I focus on asset allocation with a total return overtone. What this means in English is I take into consideration appropriate asset allocation based on a client’s risk profile but may reduce market exposure if the market potential does not warrant this position. So, I am generally defensive but take an appropriate market position when opportunities arise due to volatility, sentiment and market related factors.

I believe being active in your selection and asset allocation is the only way to turn volatility to an investor’s advantage. 


My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

Mark Lyttleton Is Taking A Leave of Absence From BlackRoch & Fund Management

1 Jun

Mark Lyttleton is taking a leave of absence for the summer (18 June and end on 17 September 2012). So what does this mean for the funds he manages at BlackRock?

Mark Lyttleton to run absolute return fund for St James's Place

In most cases where personal family issues are given as the reason for the break, one can’t speculate on the issues why. Although, it is more common that if they return to work the vast majority of fund managers that take time out do not return to the role they previously held.

For investors the crucial aspect of this latest twist in the Mark Lyttleton tale is – what to do if their money is in one of his funds?

Since the start of this year, Mark Lyttleton has been removed from managing the BlackRock UK Fund. The reason given at the time so that he could focus on the higher alpha strategies he runs – the BlackRock UK Absolute Alpha and BlackRock UK Dynamic funds.

This makes the timing of his three-month break even more extraordinary.


My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan