Tag Archives: Mutual Funds

Market Trouble?

6 Sep

I am pleased with the positioning of the portfolios I manage and believe we are well placed for the current volatility. We have made healthy profits over the last three months and during the previous market declines were well insulated against and retained our position well relative to the investment markets.

The recent dip is expected to lead to the third losing week in a row, following six straight weeks of gains.  While that may have bled off some of the over-bought pressure, the bears may not be done yet.  We’re headed into one of the weakest periods of the year, and the floors the bulls are hoping will hold up are going to be tested soon.

First things first though – last week’s and this week’s major economic data.


US Economic Data

Most of last week’s economic numbers were bigger-picture items

On the consumer sentiment front, the Conference Board’s confidence score fell drastically in August. The Michigan Sentiment Index, rose to a three-month high.  It does make you question how two seemingly – so similar measures can end up with wildly different results.

Real estate continues to look stronger.  The Case-Shiller home price index was up and July’s pending home sales are expected higher.

The surprise positive last week was Quarter 2 GDP growth rate – up above estimates; and, if July’s Factory Orders are any indication, then the trend may actually be improving rather than decelerating.


Some potential market-movers:

Construction Spending – this number has been generally healthy of late. 

Auto Sales –  Car sales have been relatively firm of late

Job Cuts and ADP Employment Change – this is the prelim before Friday’s unemployment rate figure and official jobs-created figure.  

Nonfarm Payrolls and Unemployment Rate – economists are looking for 145,000 new private payrolls; and most expect the unemployment rate is not going to move from last month’s 8.3% figure. 

If these figures fail to achieve estimates – this would create uncertainty and an expected decline in the markets – although the expectations are low and that may not inspire a positive move either.


Market Movements

After everything is said and done, the imminent path of least resistance is still downward-pointing. I am not anticipating a major correction but rather some sell trades, most likely just enough to fully burn off the overbought condition.



South Korea

The South Korean economy is starting to lose steam as the European debt crisis remains unresolved and export markets remain weak.

The latest figures show the country’s economy grew by 0.3% between April and June, down from 0.9% growth in the previous quarter.

The government is therefore looking at ways of boosting domestic demand to compensate for weakening exports.


UK Rises in Competitive Rankings

Leaders from 2008 World Economic Forum

The UK has risen to eighth from 10th place in an annual study of global competitiveness.

The World Economic Forum’s (WEF) Survey said the UK had benefited from a more efficient labour market compared with more “rigid” European economies.

The US economy fell from fifth to seventh place, although WEF said it remained the top innovator.

Switzerland topped the table, followed by Singapore and then Finland in the survey of 144 economies.

The ratings are compiled using public data as well as executive opinion.

The survey placed China as the most competitive major emerging economy.


‘Innovative businesses’

The WEF said the UK had benefited from “clear strengths such as the efficiency of its labour market” and praised the UK’s “sophisticated and innovative businesses”. However, the UK’s macroeconomic economic environment – ranked 110th, down from 85th last year – was hindering competitiveness.

The Treasury said it “welcomed” the report, saying the UK’s improvement was down to the government’s reforms.


Europe’s north-south divide

The WEF survey showed a clear divide between Europe’s northern countries and the troubled periphery economies which are suffering from recessions.

In total, six European economies are in the top 10 – Switzerland (1st), Finland (3rd), Sweden (4th), the Netherlands (5th), Germany (6th) and the United Kingdom (8th).

But the southern Eurozone economies are ranked much lower, with Spain in 36th place, Italy 42nd, Portugal 49th and Greece 96th.

The southern economies, which are at the heart of the Eurozone sovereign debt crisis, have suffered a chronic lack of competitiveness and low levels of productivity that led to unsustainable imbalances in the economy, followed by rising unemployment.

The WEF urged an overhaul of labour regulations “sooner than later” as one of the necessary reforms to restore growth.

Switzerland maintained its top position thanks to its scientific institutions, a strong collaboration between academia and business sectors, high spending on research and development as well as its high rate of patenting per capita, the WEF said.


US political gridlock

The US ranking has continued to fall due to weakness in the overall economy as well as worries among businesses towards what they perceive as government meddling in the private sector and distrust towards politicians.

The WEF warned that in the US, despite being the world’s top innovator with the likes of Google and Facebook, political gridlock over fiscal tightening could dampen growth prospects.

The survey cited an inefficient government bureaucracy and tax rates as the two biggest impediments to doing business in the US.

Retirement Planning Needs To Be Taught In Schools

30 Aug
Retirement planning needs to be taught in secondary schools and given the same priority as careers advice, according to de Vere Group’s chief executive Nigel Green, who says this is the only sustainable way to solve the pensions crisis. 
His comments follow a study by Barings Asset Management that found 44% of those close to retirement age were unable to say when they would be able to retire. 
Get the Most from Retirement Planning
It’s terrifying to think a large proportion of the population who are nearing retirement age do not know when they will be able to afford to retire. As a nation, it seems we’re ill-informed. In order to ensure people are, in the future, more likely to be able to retire when they choose (and not have to work on past their selected retirement age because they can’t afford to give up work), it’s of vital importance we teach from a young age – how to plan finances.
The earlier people start to make informed decisions, the easier it is to enjoy the lifestyle you deserve when you retire. Many are disillusioned with retirement planning and especially pensions but the truth is more likely – people are dissatisfied with the investment returns generated – this is where professional financial advice is paramount (but make sure the person giving the advice has the ability and enthusiasm to provide suitable advice both now and in the future).
In a poll back in April, more than 80% of users said their pension pot had failed to grow in-line with promises and projections made when they first began contributing (information provided by Barings Asset Management). Unless students are informed about the massive risks of ignoring retirement planning, many could find themselves worse off in later life.
Annuity Rates are at historic lows, age-related benefits is being scrapped, soaring living costs and taxes, and people living longer – meaning money has to go further – it’s clear that the world has changed irrevocably in the last few years; things are not the same today as they were a generation ago. Should we fail to plan for retirement, an increasing number could find themselves unable to enjoy the retirement that previous generations have taken for granted.
In secondary schools, students are taught about finding a suitable career, which is right and proper, but it is madness that we stop without equipping them with the life skills of how they are more likely to be financially independent once they are ready to leave the world of work. 
Personally, I am a great believer in both pensions and alternative investment vehicles, such as ISAs, certain structured products/deposits, simple fixed term deposits and collective investments. I have been and will carry on saving through these investments and as an IFA (Independent Financial Adviser) specialising in investments and tax planning – I know that if I do not provide for my future – no one else will. I plan that we will have the retirement we deserve and yes, I expect and have planned to financially assist our daughters through their path to adulthood.

US Economy Expands

30 Aug
The US economy grew more than first estimated in the second quarter, according to official figures.
US economic growth revised up to 1.7pc
In a world of negative sentiment, there are signs of improving prosperity – admittedly slow but positive. We await for Ben Bernanke’s statement on Friday but I, and many investment strategists and analysts before me have said, we are expecting the news to be no earth shattering news….this seems to be one of the recent driving force seeing marginal losses in global stock markets but there are also many other factors.

Mr Bernanke has used the event, a conference of the world’s central bankers, to indicate the Fed’s intentions. So far, the Fed has kept base interest rates near zero for almost the last four years and injected $2.3 trillion into the US economy.

The US Congress’s budget office last week warned that spending cuts and tax rises could trigger a sharp economic slowdown in 2013. In its report, it expected the US recovery “to continue at a modest pace” for the rest of 2012 but warned that “substantial changes to tax and spending policies” would cause the US to tip back into recession next year.

The 1.7% annualised pace in ahead of previous estimates of 1.5%, unemployment is still above 8% and the economy is shaping up to be one of the biggest issues of this year’s US presidential election, which sees President Barack Obama take on Republican rival Mitt Romney.


Market Outlook On 29 August 2012

29 Aug

I think it is clear that volatility will be part of the investment landscape and despite a strong bounce on Friday, it wasn’t enough to pull the market back into the black for the week. This is the first losing week for stocks in the last seven weeks.  

2012 Gold Q2 Market Trends and Outlook4


Economic Calendar

Last week saw only a few economic numbers released, but the ones we got painted a big piece of the real estate picture in the US – but the information was conflicting. 

The Good News – existing home sales increased, new home sales increased and homebuilders’ earnings expected to increase for that two-year timeframe. Also, Aircraft sales rose and auto sales were higher.

The Bad News  – MBA Mortgage Index fell and the FHFA Housing Price Index was only up 0.7% for June. (It is up but it remains a very slow improvement trend.) Also, durable orders fell marginally.

As for the coming week, it’s a pretty big one with :-

  • Consumer Confidence figures for July
  • Michigan Sentiment Index score for July
  • Personal income and personal spending figures for July

Stock Market

First and foremost, the longer-term trend is still bullish.  Even if the market does indeed end up going through a near-term correction, we’ve yet to hit a major top.  Specifically, the upper 52-week Bollinger band has yet to be tested.  Since 2009, and really for the last several years, the one-year upper band line has marked the point where the bigger trend usually starts to stall and even then it doesn’t always kick-start a major market pullback.

That said, whether or not the longer-term trend is still in place won’t change some of the red flags we’re seeing.  For instance, the CBOE Volatlity Index (VIX) (VXX) remains uncomfortably low – at levels frequently seen at near-term tops.  And once again, volume remains at eerily low levels, and was even weaker on the way up over the past seven weeks. 

So what’s next?  That’s the problem – what’s next?  It remains unclear whether or not the new-market level is going to become a floor or a ceiling for the foreseeable future.

My opinion has not changed – a little bearish in the short run, but still bullish in the long run.  I still expect the markets to be volatile, with a market pullback followed by a market rally.  My clients are positioned ready for this downward correction and upward rally. The question is, when will it happen?  

Next week is apt to be quite unremarkable, with late-summer, back-to-school, last-minute-vacations, and other distractions in the lineup.  That will lead us into the first full week of September, which kick-starts what’s usually a tough first half for the month for stocks.  The weakness in early and mid September leads into potentially the best period of the year (Quarter 4), but it’s still not going to be an easy ride.

I expect t would be something of a miracle if stocks didn’t take at least a small hit soon. Although, that dip doesn’t have to be fatal. The dip just has to be big enough to humble the markets a bit.  Moreover, the dip could and I expect would be a huge buying opportunity for a bullish finish to the year.

HMRC Crack Down on Tax Avoidance Schemes

22 Aug

HMRC has won, subject to appeal three court decisions against tax avoidance schemes. These cases are expected to provide the Exchequer with £200 Million.

The message is clear – when planning to minimise tax, ensure you use the rules that exist, take advantage of government backed schemes (eg personal pensions, ISAs, VCTs, EISs, AGR & BPR related schemes) and use accepted approaches within the flavour of the law – take professional advice. The cases in question are high value high – profile and are out of the remit of the general investor but the ethos of HMRC is clear.

HMRC Letter 480

HMRC have stated that this sends “a very clear message” that it will tackle efforts to avoid paying tax.

The first case, against ‘Schofield’ and heard in the Court of Appeal on 11 July, involved a business owner using a tax avoidance scheme to create an artificial loss on his sold business, even though it had actually made him a £10m profit. HMRC said he paid £200,000 to be involved in the scheme.

Another case against Sloane Robinson Investment Services, heard in the First Tier Tribunal on 16 July, saw the company’s directors attempt to avoid a combined £13m worth of tax on their bonuses. The First Tier Tribunal ruled the scheme, even once it had been modified to counter recently introduced anti-tax avoidance legislation, did not work.

In the final case, against ‘Barnes’ in the Upper Tribunal on 30 July, a scheme aimed at exploiting a mismatch between two tax regimes on behalf of more than 100 individuals failed to work. HMRC said some £100m was at stake as a result of this scheme.

HMRC director general of business tax, Jim Harra, said: “These wins in the courts are a victory for the vast majority of taxpayers who do not try to dodge their taxes. They send a clear message to tax avoiders – HMRC will challenge tax avoidance relentlessly and we will beat you.

“We have now had three major court successes in avoidance cases in the last month alone and I hope this sends a very clear message: These schemes don’t come cheap, you carry a serious risk that you’ll end up paying the tax and interest on top of a set-up charge which can run into the hundreds of thousands of pounds.

“These were complex cases which show HMRC’s experts doing what they do best, delivering great results for the UK.”

ECB Meeting – Plans To Solve Eurozone Countries Borrowing Costs?

2 Aug

Today in Frankfurt the European Central Bank (ECB) will hold its latest meeting. The “word” is the focus will be to bring down Spain’s cost of borrowing.

Mario Draghi-euro

We know ECB president Mario Draghi is ready to do “whatever it takes” to support the Euro and if Spain needs a bailout, it is expected the ECB will take unprecedented steps to help.

It is clear that although past measures have helped, but weren’t fully effective and did not achieve the end goal (at least so far). We would expect that if nothing is done to lower and stabilise the borrowing costs of countries like Spain and Italy then their future within the euro will be in question.

Mr Draghi has confirmed he will hold a news conference later on Thursday.


US Federal Reserve Wednesday – 1 August 2012

The US Federal Reserve took no further steps to boost the economy but said that it “will provide additional accommodation as needed to promote a stronger economic recovery”. This is following confirmation that the growth in the US Economy (as measured by GDP) in the first 6 months of 2012 had slowed.


ECB Resume Bond-Buying?

At a conference in London last week marking the start of the Olympics, Mr Draghi said: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”


Is It Possible to Forecast The Investment Markets?

31 Jul

I think it is unrealistic to try to forecast market trends in the current financial environment – I think it is clear that the potential to both good and bad scenarios are well matched – sentiment still is the driving force – and this will and has led to wild market swings.

In my opinion if there is a definite forecast and prediction given – I would call it a “guess” – unless enough assumptions  are made – but that will make it useless in the “real world” and becomes an academic article rather than a reflection of what could happen.

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What a difference a day can make. Coming on the heels of one of its stronger performances this year, stock markets ended in the red yesterday. The market’s so-called “fear gauge,” or the VIX, spiked sharply but within the current trading range. Markets temporarily paused from their intent focus on potential stimulus, although some weak economic data did surface during the day. Several data surveys plummeted in July indicating a weakening manufacturing environment.

Around the markets
A 2% drop in JPMorgan Chase, on the back of a downgrade from banking counterpart Deutsche Bank. This erased gains stemming from positive news from the likes of Coca-Cola and AT&T. Coke announced today a reorganization of its business around three core units: Coca-Cola Americas, Coca-Cola International, and its bottling division. AT&T announced an extension of its current buyback program that would allow it to purchase back nearly 5% of its shares outstanding.

In other news, shares of Latin America e-commerce site Mercado Libre cratered 7.54% today on no news. The company, with significant exposure to potentially slowing economies like Brazil, finds itself down nearly 14.5% since the beginning of the year. Touted as the eBay of Latin America, the company has an already-proven business model, and despite its pricy valuation of nearly 37 times earnings, its predicted annual growth rate of 28.15% over the next five years makes for a pretty compelling bull thesis.



“Only mad dogs and Englishmen” would try to predict what the markets will do next. Personally, I believe in asset combining with different correlation to smooth out the returns generated with a bias to dividends, yields and including both collectives, structured products and, where needed, fixed term deposit bonds – to hopefully achieve goals and returns in the short, medium and longer term.

I believe you must follow a defined strategy, assess – review and know when to change the strategy. The art is to measure and own suitable assets based on the potential risk-reward relationship – include assets which behave differently and target specified dates.

You will see from the table above the success and failure of different asset classes from year to year – to make positive returns takes effort, focus and expertise – and then there are no guarantees.

Always review and consider your assumptions, make sure they are realistic and achievable, own assets for the right reason, do not panic buy or sell.

Remember this must be a factual exercise – always try to have full information to make these decisions and learn from your mistakes.

Emerging Market Debt Warning

30 Jul

Mike Riddell, fixed interest fund manager and heads up the Emerging Market (EM) Debt Fund had to say – he thinks emerging market debt may once again provide a good buying opportunity; however, at current levels, he thinks investors would be wise to look elsewhere. 

Investors will be well aware of the Emerging Market narrative – the asset class will surely outperform because of low debt levels, high growth and strong demographics.

The flaw in this argument in relation to EM debt:-

  • the performance of EM Debt has very little to do with GDP growth rates or demographics
  • it has been driven more by global risk appetite, US Treasury yields and the US dollar
  • instability of the Eurozone

Mike Riddel has highlighted concerns that emerging markets will face further country – and region-specific risks. 

He has sited the potential of an economic rebalancing in China could pose a particularly big risk to the asset class. China has had the biggest credit bubble in the world in the last three years, and rebalancing may result in GDP growth falling to as little as 5 to 6% per annum.

His opinion is, the risks facing EM debt appear to be rising, and while some exchange rates have begun to move, the asset class does not appear to be pricing in these risks.

My Conclusion

I believe that the risk reward ratio does not support holding this asset class and the downside risk dramatically out-weighs the upside potential.

This is not an asset class I currently hold in client’s portfolios, so personally I agree with Mike Riddell’s opinion.

There is no such thing as a bad asset class rather bad valuations – I do not expect this asset class to provide good valuations in the near future. (A price correction could easily reverse my opinion as the valuation and potential of positive returns change an asset class from being out of favour into an asset class which is in favour.)

Will The Earnings Season Lead to Prosperity or Panic?

26 Jul

Looking to the major market indices it isn’t clear what market action to expect over the remainder of the year but could this be another year of two halves? The pattern of the market does look like it’s forming a bearish rising wedge.

Remember, technical analysis is always part art and part science – so you can never be completely certain on outcome based on a market pattern. Using historical analysis – a rising wedge pattern – roughly two-thirds of the time they will break to the downside. (Conversely, one-third of the time they break to the upside.)

Market Timing Indicator for July 23 2012

In accomplishing our goal of capital growth we must do a number of things. We must make returns on our investments, we must protect our investments, and we must limit our losses.  While all three aspects work in tandem with each other, we must bias our allocation towards one specific goal.

Regarding the current portfolio positioning, I’m not so focused on the chance that these wedges will break to the downside – more the impact of each scenario on my client’s portfolios.  Markets are currently heading towards long-term resistance lines that have been around for decades.  If we do break to the downside, although at some point I think we will, there could be a very significant sell off with consequences that no one can predict at this point.  Alternatively, there is the potential to an upside break and if there was I expect it will be quite muted.

The only scenario I believe has a true chance to inflate equity values is a series of positive earnings announcements.  A lot of expectations, earnings numbers, guidance, etc… have been revised downwards over the last couple of quarters, so there is the opportunity for some positive surprises that could lead to some bullish price action.  In absence of such a scenario, I really can’t think of much else that would prompt a run up.

Further, I expect trading in the near future to get very volatile. When reviewing the shape and trend of the last quarter the typical following quarters would show high volatility with little overall change then a correction followed by a recovery phase from over-panic. The question is will this trend repeat this time? 

Screen Shot 2012-07-24 at 20.15.52

Historically, and looking forward as August and September have been very costly for the average investor. 

My focus will be in taking the highest probability client appropriate risk-rated strategy that offer hopefully the best risk to reward scenarios.  There will be times when we miss our opportunities, and times when they’re not timed perfectly.  But, patience pays off in the long run…there goes my crystal ball – still doesn’t work…

Are Equities Mispriced?

23 Jul

Looking at a chart of the VIX index, we have seen a floor to the index generally being around 15 for the last 5 years but with the range 15 – 18 being the sell-trigger or the spark where the index typically sees a rise. VIX is currently at 16.27. Risk pricing in US equities is once again showing a lack of caution.

Is this a trigger to sell?   

To put it another way let’s compare VIX to IG CDX (investment grade CDS index).

Unlike VIX, which is measuring implied volatilities of options, CDX is an indicator of CDS protection premium (spreads) on the bonds of many of the same US companies. I am suggesting that this, in general, compares the risk pricing for equities with that of credit.

The scatter plot below shows VIX vs. IG CDX levels since 2009. Based on this dislocation, equity implied volatility looks relatively cheap.


The market outlook is not clear and we are sure that market volatility is here to stay.

The issue being the cost of institutional debt, especially debt in the form of Gilts, Treasury Notes and Blue Chip Corporate Bond especially – are expensive

In comparison, on a relative basis, equities seem to be cheap – financial instruments seem expensive – so a suitable market exposure approach may well be to take a classical view and own defensive equities with strong cash flows mixed with some niche markets which are less vulnerable to the current market weaknesses and/or have already seen serious market corrections.

The question is what type of investor are you? Are you investing for months, or years or a fixed point in time in the future?

I would suggest that a combination of strategies is required, combining deposit-based strategies for the short-term, structured products for, the say, 2 – 6 year focus and investment portfolio for the over 5 year investment duration.

I accept and expect every personal circumstance and focus is different.

Good luck investing.