Normally during the summer months not a lot happens on the financial markets. But what a few months we have had. And it all seemed to have started just after the UK referendum result at the end of June, as I am sure you will have noticed. I have had this discussion with several clients already, and I will reiterate it, I am fairly convinced that the global financial markets have not reacted the way they have just because the UK has decided to leave the EU. There is more going on than just this. Although, as we are now seeing there are several companies and bodies talking completely differently about the UK’s impending departure of the EU in a more positive perspective. And this will have helped the financial markets, certainly here in the UK and in Europe.
This is no banking crisis
If you look at the graph below it shows the Simple Solutions Balanced model portfolio performance over the last 2 years going back to August 2014. What I want to point out is the line on the graph I have inputted from the top of the market on 14th April 2015 to date. This is important for only one reason, in that it shows the recent rally after BREXIT in the last 6 weeks, actually the markets are only recovering past losses. By this I mean the downward trend from April 2015 to date is in my view the bear market that we have just endured.
So when people ask ‘are we not at the top of the market?’ I think that maybe we are not, and hopefully the graph illustrates this. Regular readers of these blogs will note that I have said the global economy is not doing that badly. And today the position is still the same. Things are fine, not without a few problems, but generally doing okay. It is a far cry from ‘dark days’ of February this year (see graph) when it reminded me just a lit bit of 2008 all over again. But I’ve said this before and I will say it again, this is no banking crisis.
Onwards and upwards
Economic growth in developed markets is still around 2% and whilst this is still lower than pre-2008 levels, this is still a level that most economists would see as consistent with full employment as measured by non-accelerating inflation rate unemployment. In the US the unemployment figure is 5%, the figures in the UK have just been released, and have actually got better post referendum. The UK referendum result has had an effect on interest rates with a further cut in the UK last month. And in the US too I would now expect a hold to be put on a rate rise. It seems that the US federal reserve have already made a decision to ‘go lightly’ with any future rate rises, in an attempt to help the global economy. And this is very positive news. Inflation is probably likely to rise in the UK in the short term, however I do not expect this to happen globally.
One asset class that has taken a hit is UK commercial property. One of the reasons for this again is down to BREXIT and foreign companies waiting before making a decision on whether to deploy people here in the UK. That said, even in this asset class the market has picked up a little during the last 3-4 weeks.
What it’s all about
As always when you look at the model portfolios it is all about value and fund selection. The selected funds have gone through a rigorous filtering process to get in. There are funds in there that are outstanding in their respective fields. And as you know from the recent changes there are some quite exciting new funds which gives us extra exposure to certain commodities as well as infrastructure.
So in the main I am reasonably happy with the current positioning. And I am certainly glad I ignored that old financial saying ‘sell in May and go away’ because if you look back at the graph we would have missed all that growth. This is living proof that you cannot time the markets. What is more important is your time in the markets.
Have a good summer.