David Wheildon / February 2019
The arrival of 2019 has made very little difference to the stance we took at the last rebalance in November last year. This is because, bar all the shouting and rhetoric, very little has changed in either the global economic position or the actual negotiations regarding Brexit. On Brexit we took the view last quarter that the outcome would not be resolved smoothly and easily, therefore we thought it best to stabilise portfolios by moving moneys to less volatile assets while the debates and discussions continued. Although pleased that this was indeed the right decision (hindsight is a wonderful thing), even we had little idea that matters would evolve in the manner they have.
Having said for some months that certain Brexit options were “off the table”, as politicians were running from them like an arachnophobic chased by a horde of spiders, I am afraid to say that all options are now very much back on the table. No matter what is put forward, the truth of the matter is that it is now impossible to predict the outcome of the Brexit position and this uncertainty is in fact the only certainty in our current world. On this basis we do not feel it would be prudent to move money back into more stock market based areas but feel we should continue with the more prudent stance we currently hold.
Even though the level of the current political turmoil could barely have been predicted, markets have not been overly unkind. There were difficult times towards the end of 2018 but in the last few weeks we have seen support for markets at reasonable levels and it has in no way been a freefall. We still feel it would be brave (or even foolish) to treat the support levels as certain, so don’t feel they provide enough weight to support the argument for reinvestment. They do, however, confirm the merits of medium to long term investment planning and the benefits of “riding out” any difficult times.
Anyone who has “run to cash” with the intention of reinvesting will, assuredly, miss the bounce when sentiment turns and will end up reinvesting at a much higher level than the one at which they withdrew. In our portfolios we have left some moneys fully invested and are monitoring the fund managers to ensure that they take the short-term market movements as trading opportunities. Currently with less invested in these funds they will not necessarily make substantial profits for you, but the fund managers should keep the performance returns ticking over. The alternative is to bet heavily on one particular Brexit outcome and invest accordingly; we believe this would be rash in the extreme and would far more likely result in substantial loss (unless of course one has a crystal ball of perfect clarity!).
Away from Brexit, the sabre rattling between America and China appears to be calming somewhat as truthfully, neither side is looking for a trade war. America has its own budgetary internal problems and the last thing President Trump needs at the moment is an escalation in tariffs. Despite President Trump’s best efforts, the American economy continues to perform and where America (and China) lead, the rest of the world follows. Overall global growth is slowing but it is still positive and the opportunities for global investment continue to present themselves. This theme of a growing global economy but growing at a slower rate is echoed in economies around the world and we should therefore expect generally modest returns in 2019. We believe there are many opportunities for profit but that it will be a year of steady rather than spectacular returns, which realistically will come at some point later in the year. Trying to time the exact point markets react to these opportunities has been proved to be a fool’s game, as the years have shown that the secret to medium to long term positive returns is continuous investment with a balanced and diversified strategy.
In summary the current uncertainty is a case of “more of the same” but the portfolios are well positioned to work through this and will react positively when sentiment changes. In the meantime the markets are a little more volatile but are showing pleasing signs of robustness; although something of a cliché now, it really is a case of “Keep Calm and Invest On”.
This article is the opinion of David Wheildon