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Earnings Season Gets Underway – And The Return of Market Volatility

16 Apr

OK so it was unexpected how stable the markets were in Q1 2012, I expect it is hello again to volatility going forward.

rollercoaster cartoons, rollercoaster cartoon, rollercoaster picture, rollercoaster pictures, rollercoaster image, rollercoaster images, rollercoaster illustration, rollercoaster illustrations  

On the reporting side, almost a fifth of the S&P 500 report next week and these include some big blue chip companies and banks (IBM, Microsoft, Coca-Cola, McDonald’s, Citigroup and Bank of America). On the economic front, March retail sales, industrial production, existing home sales and weekly jobless claims.

The Good News – valuations seem to be supportive of the market

The Bad News – stocks fell for a second week, in the most volatile week of the year, punctuated by big swings in both directions.

I think this is the first time since possibly October last year, where we have seen been effected by the reality that stocks are typically volatile, despite low volatility in the first quarter. It’s possible we could see further losses with trend data indicating a growing potential of this being double what we’ve recently seen. This could become reality off of the weaker U.S. data; a slowdown in China, and the European debt saga becoming more threatening again.

The biggest uncertainty is the Eurozone. Europe has recently returned as a significant market worry with yields in Italy and Spain rising dramatically, amid expectations of weak economic data and growth and growing fiscal concerns. I think there are going to be more reported over the European scenario, as Spain issues bills on Tuesday and longer-dated securities Thursday; ECB (European Central Bank) President Mario Draghi speaks at the ECB statistics conference on Tuesday.

This is a challenging time but could also be very profitable as volatility creates opportunities.

Any questions – my email address is; or follow me on – twitter welshmoneywiz, linkedin Darren Nathan

Markets Weekly Round Up – And What A Week

14 Apr

The markets have ended the week down, marking the largest weekly decline so far this year. What a crazy week in the markets! The markets have felt more like a roller coaster than the financial valuations of shares in companies, with prices swinging wildly on an almost daily basis and that’s in a week where there was virtually no significant economic and other driving news.

Investor sentiment has really shown how quickly investors views have and can change from optimist to pessimist. This change was expected as we have seen a lack of market volatility and investment realism based on actual underlying fundamentals so the likelihood of the “king’s new clothes” scenario I had expected. The question is – is this just a bit of profit-taking before the rally continues or the end of an overzealous spike – the calm before the storm and panic?

I am expecting a short-term pull back based on fundamentals, Eurozone fears, US & China economic story and reality that the markets have priced in an overly optimistic view of the near future. In spite of this I believe the general trend and data show a positive story over a long time horizon but the short-term will be volatile and is currently over-priced with a further drop expected.

The Markets

The recent market drop and increased volatility reflects, in my opinion, investor sentiment regarding the health of the UK and global economies, which saw some of the most impressive gains of the year going into earnings season and were then wiped out over the last two weeks.

I can confirm that prior to the recent declines, I had already restructured client’s portfolios to be significantly more defensive and the outcome is during this negative period we have made a profit and are well placed to take advantage of the opportunities created by the situation. Client’s investment risk exposure is carefully controlled to reflect their personal risk profile as a maximum if potential profits warrant the exposure.

When we have weeks like the ones that have just been, help to explain why investing for the long-term is the only way to play the markets today but with the bias to maximise potential risk adjusted profits and minimise any potential to losses. The plan is to structure and manage clients’ portfolios to reflect potential risk/return opportunities with a limitation on the exposure as defined by your individual risk profile. To be sure, I believe you should stay well-informed about the recent happenings and this is part of the reason for the existence of this blog.

However, wild swings like this week’s often hurt investors’ psyche more than they help unless you receive suitable support, guidance and investment advice. The risk being that investors can be largely distracted from the most central aim of saving and when you receive quality advice market volatility, panic and confusion can lead to enhanced profits.

Questions, please contact me at, twitter welshmoneywiz, linkedin Darren Nathan

Seeking Advice

18 Mar

I have been asked by many, the best way to contact me if you are seeking advice?

The easiest is by the blog email :-, or my business email :- or

Or call my office :- 029 2020 1241

Or my mobile :- 07931 388651

Or to follow me  –

On twitter :- Welshmoneywiz

On Linkedin :- Darren Nathan

All the best


So What’s Asset Allocation & What’s The Point?

11 Mar

I have mentioned throughout many articles, as financial adviser, professional investor and wealth manager, the importance of asset allocation.

I think it is worth explaining more, as to what this means to me.

Many financial experts believe asset allocation is an important factor in determining returns for an investment portfolio. Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. So, diversification reduces the overall risk in terms of the variability of returns. Academic research has painstakingly explained the importance of asset allocation and the problems of active management.

Asset allocation is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset class in an investment portfolio according to the investor’s risk tolerance, market expectations, client’s goals and investment time frame.

Each asset class will move to some extent either correlated or negatively correlated with equities. So what this means is some assets will rise and fall with equities; and some assets will generally fall when the stock market rises and vice versa. By combining these assets in a portfolio, we can diversify what we hold and the volatility of the portfolio. The dream is to achieve a straight line of growth no matter market conditions. Admittedly, I believe that this is impossible but it’s what we strive to achieve.

The more equity exposure we take, where the risk profile is increased the wider the range of the possible outcomes both positive and negative. My underlying strategy is to take a diversified broad-based approach but when markets correct aggressively, then the risk-return ratio can achieve significant returns, at least in the short-term i.e. buy cheap and sell at a higher price. Over time the market typically returns to an average return, so care needs to be taken when considering if we are above or below the average. The question being; Are pressures in the market up or down? What time scale are we considering? Following the banking/debt/global economic crisis, what is our time horizon? And, what should it be?

I believe a key constituent to developing a strategy is market expectations. Personally, I am not willing to place a client in an asset allocation, where I expect we will make a loss. I see a person’s risk tolerance as their maximum or normal exposure in a rather abnormal world.

Any decision around this area is discussed first with my client. (My crystal ball works no better than anyone else.) If we are expecting a market pull-back (decline) then a more defensive strategy than normal may be more suitable. By asset allocating, then if we expect equities to drop in value, other markets are growing and so combining or excluding some assets can obtain positive returns in declining equity markets.

Asset classes and strategies

There are many types of assets that may or may not be included in an asset allocation strategy:

  • cash and cash equivalents (e.g., certificate of deposits, money market funds)
  • fixed interest securities such as Bonds: investment-grade or junk (high-yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets; or Convertible Securities
  • stocks: value, dividend, growth, sector specific or preferred (or a “blend” of any two or more of the preceding); large-cap versus mid-cap, small-cap or micro-cap; public equities vs. private equities, domestic, foreign (developed), emerging or frontier markets
  • commercial property or residential real estate; and REITs
  • natural resources: agriculture, forestry and livestock; energy or oil and gas distribution; carbon or water
  • precious metals
  • industrial metals and infrastructure
  • collectibles such as art, coins, or stamps
  • private equity and Venture Capital
  • and others

There are several types of asset allocation strategies based on investment goals, risk tolerance, time frames and diversification: strategic, tactical, and core-satellite.

Strategic Asset Allocation — the primary goal is to create an asset mix that will provide the optimal balance between expected risk and return for a long-term investment horizon.

Tactical Asset Allocation — a more active approach that tries to position a portfolio into those assets, sectors, or individual stocks that show the most potential for gains.

Core-Satellite Asset Allocation — a hybrid of both the strategic and tactical allocations mentioned above.

Systematic Asset Allocation – depends on three assumptions:-

  • Markets provide explicit information about the available returns.
  • Relative expected returns reflect consensus.
  • Expected returns provide clues to actual returns.


Return versus risk trade-off

In asset allocation planning, the decision on the amount of stocks versus bonds in one’s portfolio is a very important decision. Simply buying stocks without regard of a possible bear market can result in panic selling later. One’s true risk tolerance can be hard to gauge until having experienced a real bear market with money invested in the market. Finding the proper balance is key.

Asset allocation is important. It determines an investor’s future return, as well as the bear market burden that he or she will have to carry successfully to realize the returns. We are looking to an investor’s sensitivity to loss in the hope of long-term profits.

It is interesting to see that those with a more cautious prudent approach over the medium to longer term have performed better than more speculative strategies. The depth and severity of the recent recessions (or bear markets) have been the primary contributing factor.

My experience is that my clients risk profile is affected by the level of fear of losses. Generally speaking, I believe we should take a more prudent approach unless the market creates an opportunity to make enhanced profits.


Problems with asset allocation

There are various reasons why asset allocation fails to work.

  • Investors’ risk tolerance is not knowable ahead of time.
  • Security selection within asset classes will not necessarily produce a risk profile equal to the asset class.
  • The long-run behaviour of asset classes does not guarantee their shorter-term behaviour.
  • Most all asset allocation decisions fail to consider the effects of personal circumstances and any life changing events


Any questions email me –

Being Defensive Makes Sense in a World Where So Many Things Can Go Wrong?

10 Mar

We are all more fearful of the pain of losses than the pleasure of gains, that is “behavioral finance”.

One of the reasons so many worry is 2011 was such a volatile year – actually one of the most volatile on record. Within the first quarter saw the FTSE 100 drop almost 10%, followed by the markets rallying back and then again in the third quarter another drop of over 18%, followed by a rally of over 12%, leaving the FTSE100 down on the year by about 5.5% but what a roller-coaster.

There were and are concerns that Greece would default on its debt, efforts by China to slow the growth of bank loans, and persistently high U.S. unemployment.The stock market is up 62% since the March 2009 low, and there clearly is still a mood of pessimism and we’re still in redemption territory for equity funds, with a high amount of cash not invested even with cash returns (net of tax) typically between 0% – 2% and inflation in the UK at 3.6%.

So what happens if inflation is higher than the rate of interest accrued, in this scenario, you make a loss in real terms.

Some believe that stocks’ relatively low valuations reflects a rational assessment of their prospects. Profit margins for companies have risen since the March 2009 lows. Profit margins could have peaked and will begin contracting in coming years. So, why pay a premium for earnings which are clearly uncertain?

Others see low valuations as normal market overreaction, so stocks are now cheap. The point is we have over-worried. China was going to have a hard landing but didn’t happen. US, UK and the developed economies was going to have a double dip recession but that again hasn’t happened. Europe was going to disintegrate under internal debt crises but, and again, that just didn’t happen. So, have the worst risks passed?Even if this is true, are investors just suffering from fatigue from the investment roller-coaster ride?

While the latest rally has helped recoup a large proportion of the losses in the latter stages of 2011, it was a particularly punishing setback. I believe it is the severity and the quickness of the fall and how long it then takes to recover, which adds the levels of fear and anxiety investors have suffered.

Over time, if things continue to progress on a step-by-step basis, people will come back to stocks. When investors do, their buying power I believe will lead the market to new highs. In the mean time, I have a foot in both camps which has led to profits in both halves of the cycle. We are poised for the next market correction (this will add additional profits). Also, this stance and asset allocation in my experience leads to profits in most market conditions, so we are well placed to take advantage of market over-reaction (to the good and to the bad).  

The bottom line is – it is very unclear what 2012 will hold but it is expected to be a roller-coast ride.

I am always shocked when I meet new clients who live in fear of the roller-coaster ride (especially the down side – losses) but either stay fully invested whatever, in the hope one day it will get better; or spend too much time trying to time the market, which is impossible.

Any questions –

European Fund Picks for a Difficult 2012

9 Mar

Europe was clearly the worst performing developed region in 2011. This was caused primarily by fear over the sovereign debt crisis and a potential break-up of the Eurozone. There is a belief that these problems may well now been contained and worries over contagions into other weaker European countries could have past.

This could be good news for investors, as history shows that the worst performing regions often bounce back strongly. Although, there are many outstanding isues still to be resolved but if this is the case, there could be a strong argement to invest in Europe.

Some of the most consistent funds, in my opinion, in the sector :-

  • GAM Star Continental European Equity
  • Blackrock European Dynamic
  • Threadneedle European Select
  • Neptune European Income
  • Jupiter European
  • FF & P European All Cap Equity
  • Jupiter European Opportunities (Investment Trust)

My email is :-

Europe’s Second Cash Injection of Cheap Money

29 Feb

In December 2011, the first mass injection of cheap money into the European banking system from the European Central Bank was seen as a major success. This helped fuel the market rally at the end of 2011 into 2012; and the markets have opened higher on the expectation that the results from the second installment will be successful again.

Estonia Using Euro








The first time around, the market did not initially appreciate how popular this three-year term refinancing operation (LTRO) would be .

With the second round, there are a several central questions to be answered:-

  • How Big Will It Be? The estimates suggest 400 Billion Euros and this would be seen positively by the markets
  • How Much of the Total Sum Is Actual “New Money”? Analysts are predicting up to 300 billion will be new liquidity.
  • How Will It Affect Markets? Immediately after the LTRO, a large takeup by European banks should help boost the recent risk rally in stock markets, which is hoped could help bolster the recovery around the world, in the longer term.
  • How much of this money makes it into the Real Economy? If banks choose to lend it, or to buy sovereign bonds, they could help struggling Eurozone economies and bolster the productivity of SMEs (Small and Medium Sized Enterprises). Otherwise, I fear it will merely postpone the Eurozone’s troubles but for how long? 

Wealth Accumulation, Retirement Planning and Family Commitments

27 Feb

I was recently asked how much should I save and how much is enough?

The simple anwer is, whatever you can afford – save and in my book that means invest. The exception is a pot of cash for unexpected eventualities and known commitments.

The whole idea of saving and investing is for money to grow in value at a greater rate than inflation, otherwise in real terms you are losing money. What you think of as your target growth rate and risk profile is a personal matter.

You must be realistic and be aware that the higher the possible returns, the more risk and volatility you will be requested to accept. Also, more risk does not automatically mean higher returns. What it means is more risk the higher range of returns, so you could lose or gain more but there are no guarantees. My role as your financial adviser is to guide, inform and advise you on this as it will have a serious effect on the potential outcome. So, planning, reviews and planning agian is paramount.

So where to start?

OK, this may well be different depending your stage of life.

Pre-retirement is all about accumulating wealth for self (you and possibly spouse) and family.  You need to accumulate for when one day you stop working, so in most cases this is Pension Planning, ISAs, EISs, VCTs, Collectives amd possibly Investment Bonds; and of course the clearing all debts. This is so, when children go to University, need a deposit for their first flat, get married, first car, start a buiness or whatever else then, as with all us parents, we help. And one day, when it’s time to retire, we have sufficient wealth to support and fund the rest of our lives to the standard we had planned.

There are two key important factors, firstly you only get what you put in; and secondly, you need to make sure whoever looks after your investments help them to grow. We are talking effective wealth management. If you only hear from people annually or worse, never then it is fair to say they aren’t managing but they maybe being paid for the “service” they are not providing.

Post-retirement is all about wealth preservation with the target of sustaineable and growing income over time but most importantly protecting the underlying value of the investments.

The key factor being, you need to make sure whoever looks after your investments takes a suitable approach/strategy to help sustain and hopefully grow the investments. You will recognise this comment from above – we are talking effective wealth management. If you only hear from people annually or worse, never then it is fair to say they aren’t managing but they maybe being paid for the “service” they are not providing.

Here are some simple concepts :-

If you invest £500 per month and just make 5% per annum, compounded annually :-

  • 20 years – you would have invested £120,000 and be valued at £203,728.89
  • 25 years – you would have invested £150,000 and be valued at £294,060.44
  • 30 years – you would have invested £180,000 and be valued at £409,348.92

If you invest £3,000 per month and just make 6% per annum, compounded annually :-

  • 10 years – you would have invested £360,000 and be valued at £489,792.87
  • 20 years – you would have invested £720,000 and be valued at £1,366,937.30
  • 30 years – you would have invested £1,080,000 and be valued at £2,937,769.39

If you invest £100,000 and just make 5% per annum, compounded annually :-

  • 5 years – valued at £127,628.20
  • 10 years – valued at £162,889.50
  • 20 years – valued at £265,329.80

If you invest £500,000 and just make 6% per annum, compounded annually :-

  • 3 years – valued at £595,508.00
  • 5 years – valued at £669,112.80
  • 10 years – valued at £895,423.80

All you need now is your investment adviser to make in excess of 5% or 6%, to make these figures come true. Also, if we look at the last decade, the figures could be far superior to these.

Should you have any questions or want my help, my email address is :-



Switch to Risk-Neutral Position on Euro: Strategist (Article by Vittoria Oirone in CNBC on 20.12.2012)

20 Feb

Investors should switch to a more risk-neutral position on the euro as the recent rally in risk assets has made currency crosses that are not risk-adverse less attractive and they may come under further pressure, Jens Nordvig, global head of G10 foreign exchange strategy at Nomura, told CNBC.

Euro coins

The euro [EUR=  1.324    0.0058  (+0.44%)   ] ended Friday’s session virtually flat ahead of a meeting on Monday by euro zone finance ministers to discuss a second bailout for Greece and as US markets were closed for a holiday.

“There’s a very pronounced ‘structural weakness’ in euro zone capital flows coming both from the inflow and outflow side and that’s one of the key factors we’re looking at”, Nordvig, who is short the euro versus the dollar, told CNBC.

He has a target for the single European currency of $1.25 for the first quarter. 

Investors should also start booking profits on cross-yen trades as the Japanese currency is set to trade higher in coming weeks, Nordvig said.

Nordvig warns that a new wave of global risk aversion and the announcement of further stimulus by the Federal Reserve may push the yen [JPY=  79.55    -0.06  (-0.08%)   ] up to 76-77 versus the dollar in the near-term.

“We think the upside is probably limited here” he told CNBC.

“Our forecast for the second quarter is 80 so we’re already getting quite close to that, but we don’t think it will trade there quickly. We think it’s probably time to book some profits on yen-funded trades at this point”.

In a note to clients, Nordvig flagged up other potential risks to cross-yen trades, including a potential disappointment about the European Central Bank‘s[cnbc explains] Long-Term Refinancing Operation (LTRO) due at the end of February.

Woolnough: What Moody’s downgrade threat Means for Gilts (Artlicle by Kyle Caldwell in Investment Week on 16.02.2012)

16 Feb


M&G Investments’ bond manager Richard Woolnough has backed gilts to shrug-off Moody’s downgrade warning released earlier this week.

Woolnough, manager of the £5.3bn Optimal Income fund as well as a number of other portfolios, said with only moody’s putting the UK on notice, yields should remain fairly steady.

 He expects gilt yields to remain unchanged by the news, adding the overall increase in probability of a gilt default stands at just 0.17%.

He said: “The risk of default on gilts would remain to all intents and purposes unchanged.”

Woolnough was responding to fears UK government bonds could sell-off if investors got spooked by the warning from Moody’s.

The credit rating agency has placed the UK’s coveted triple-A credit rating on downgrade watch, but there was little movement in the gilt market initially, with yields rising only marginally.

“Given only one of the three main rating agencies has taken this negative view on the UK, if we weight their views appropriately then using the increase in default probability from Moody’s and reducing it by two thirds to take account of an average rating from the three agencies, the increase in probability of default would be just 0.17%,” Woolnough said.

However, other managers were more concerned by the actions of the ratings agency.

Barings’ head of fixed income Alan Wilde said he is worried about a potential nightmare scenario of rising gilt yields and a double-dip recession.

“Hampered by slow demand from the eurozone, the UK government now faces the uncomfortable choice of deciding whether to continue down the same path and risk a credit downgrade, or change tack and risk the wrath of bond vigilantes,” said Wilde.

Woolnough disagreed saying the threat of further downgrades for a batch of eurozone countries is more concerning, from a macro standpoint.

“The downgrades for example of Spain from A1 to A3 do result in a more noticeable increase in the probability of default using rating agency methodology,” he said.