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Market Commentary: Proactive Review Q2 (March-June 2018)

We thought it might be useful for all of our clients to see the quarterly market commentary that we recently sent out to all of our ‘Proactive’ portfolio clients.

What a volatile quarter this has been! Where do I begin?

In the UK we have seen the FTSE 100 (London stock exchange biggest 100 companies) flying up and down. Its relationship to the price of Sterling is staggering. Before the EU Referendum, I stated that a ‘leave’ vote would be good for UK exporting companies for a period of time. We pointed to a golden era post Sterling’s exit from the ERM mechanism in the 90’s when the pound fell hard and exporters picked the economy back up.

Post ‘Brexit’ this has been largely the case, but now a new dimension has been added. We are noticing that the Sterling rises every time it appears we ‘have a deal’ with the EU. When this happens, the FTSE 100 crunches back down.

The close ‘negative correlation’ between the two markets is uncanny. The Pound rose sharply against the Dollar in February on the back of ‘good’ Brexit negotiations.

If you look at charts of the FTSE 100, you will notice that it fell sharply at almost exactly the same time.

The subsequent fall in Sterling once ‘good’ negotiations ‘turned bad’ around April time– is then positively mirrored in a FTSE 100 rise.

I have called this simple theory –  ‘Growth out of Chaos’ as it is clear that the FTSE 100 currently prefers Brexit uncertainty. What strange times we live in?

However, this is only the aperitif to our global main course of market volatility since March the 1st.

We have also seen dangerously tense relations between the West and East which now envelopes Russia, Iran, North Korea and much more.  In addition, recent U.S. policy on imports has caused the start of a ‘trade war’ between nations as ‘protectionist’ laws are passed either side of the Atlantic – signalling a major halt to globalisation.

If this wasn’t enough, we are also seeing a thriving U.S. economy leading to ever increasing interest rates – coupled with the ending of Quantitative Easing in Europe. This is putting major downward pressure on Fixed Interest Securities (Bonds). These are the very assets we would traditionally turn to – in order to ride out volatility.

On the 25th of May this year, I celebrated 20 years since I joined this wonderful profession. I love the challenges that it brings. Markets such as the ones we are now encountering, allow the diligent to prove their worth.

I am proud of all our eight model portfolios over this very tough quarter. They have all done what they set out to achieve. The three ‘Pro-Ethical’ portfolios continued to deliver notably better growth than their mainstream counterparts. It seems that ‘Green’ has become the new diversifier – at least for now.

We needed to make quite a few changes to several of the model portfolios this quarter – in order to navigate the current volatility. I am quietly excited by some of the ideas we have come up with. This quarterly review has taken two hard weeks to produce – but I am confident that the extra effort has been worthwhile.

Portfolios have risen since March, although the current rollercoaster will continue for some time – at least until Brexit is concluded.

A reversal in U.S. foreign policy would also serve wonders for the rest of the world…..

Volatility is not always a bad thing, it presents buying opportunities and over the long term it serves to generate growth. I honestly predict some tricky market conditions over the next year, but my long term expectation is a positive one. In the words of Mr Buffett ‘it’s time IN the market – not timing the market’ that makes the difference. As always, we are here for you 100%. If there is anything you want to ask, please do so.



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