October 2024
- At last, the long-awaited reduction in US interest rates took place in September but UK interest rates remained unchanged.
- Most international equity markets are doing very well, and most bond markets are doing well too. Commodities are starting to improve. Gold continues to do well, helped by the decline in US interest rates which weakens the US Dollar.
- Geopolitical tensions are still high, especially in Gaza with further activity being confirmed today, this negative news increases the value of Gold.
- As well as the equity portion in your portfolio performing well, in the very recent past your fixed interest portion has probably outperformed its equity cousin. The following is confirmed in our biannual newsletter, but I felt it was worth repeating here. You may recall we use a process called Modern Portfolio Theory (MPT) and this process was put together by Mr Markowitz and back in the day it was sold as the “Only Free Lunch” I have the Economist’s Buttonwood to thank for this quote.
- “Markowitz’s genius was to realise a portfolio spread across lots of assets could have the same potential for returns as a more concentrated one but with less scope for losses, so in other words diversification allows investors to take less risk without sacrificing reward” quite some freebie and this is why we follow this process.
- In nearly all the recent previous monthly commentaries, I have made big of the problems with the Chinese economy. As I write this commentary, Chinese stocks have risen by 8% overnight. This is due to stimulus being applied to the domestic property market, but will this be enough? I don’t think so.
- The fixed interest market is still offering good opportunities for investors and this year has the potential to make up for some of the lost ground over the last two years. Yields continue to fall albeit gradually and this is particularly good news as our portfolios hold this type of investment.
- What are we getting right:
- Staying away from direct investments in China.
- Selling low and buying low.
- Getting into Japan early (at least a year ago the rest are only just catching up).
- Invested in Tech and staying with the US in general.
- Not selling off our Fixed Interest exposure and watching their value return.
- Watching out for cash accounts and short-dated bonds ceasing to offer attractive levels of return and what to do when this happens.
- What did we get wrong:
- Investments in Infrastructure and we took too long to move away from Agriculture; however, these areas are being corrected.
- Our portfolios are holding up well because:
- Investing in underlying assets directly i.e., government gilts and high-quality corporate bonds.
- We continue to look out for structured products to place in our portfolios because by doing so introduces a certainty ingredient. However, they are not offering the risk-free returns they were.
- Our portfolios use fixed interest and fixed interest investments suffer when interest rates are high and there is more supply – this affects their value negatively. It should be remembered however, with fixed interest, you get your money back at maturity (which is not the case with other investments), so it’s a matter of holding these investments until interest rates start to come down or the investment matures.
Please note that:
- This information in isolation is not financial advice.
- Past Performance of investments is not to be relied on and the value and the income from investments can go up as well as down.
- It is advisable to regularly review your investments.
