It has been another interesting year for markets. Again we have seen markets rise for the first 4 months or so of the year, and then increase in volatility over the spring and summer. The period between April and October was flat, and the old adage of sell in May and go away has been true again. Markets often rise in the last couple of months of the year but this year the rise we have been waiting for has not quite worked through yet, but we are confident it will come in the first quarter of next year.
We have been very active in markets this year making significant asset allocation changes and fund changes during the year. Our portfolios look very different now to how they looked 6 months ago. We have increased equity content in the portfolios but have been careful to back fund managers that we believe are good stock pickers and in the longer term we feel this is where outperformance will come from.
Internally we have continued to grow, we have increased our funds under management by 40% in the last 12 months and we have strengthened our team with the addition of Alistair Candlish, who we told you about in the summer and we have also added to the admin side by taking on Matthew Naylor. We will be sending out a note about Matthew in the New Year. There are plans to strengthen the investment offering even more and I will update you on these in the New Year. We have also been continually asked for our views in the industry press and these get published regularly.
4th Quarter Review 2013
We moved back to fully invested from our relatively defensive position in quarter 3. We continue to think that generally markets will be quite volatile but many companies are now trading very well and corporate results are improving. In late summer we repositioned by putting money back to work in Europe in both the equity and fixed interest markets. We went into Japan for the first time in years and our timing so far looks good. We also put back money to the U.S where the recovery is taking place.
There will be lots of talk about tapering and from time to time this may lead to market jitters. We shouldn’t lose sight of the fact that if tapering is coming in then it’s because the economy is improving sufficiently not to need as much support.
We sold out of our emerging markets holdings earlier this year but potentially may be looking to buy again after the markets have had relatively weak performance this year and we see some of the negatives that made us sell our position improving.
Interest rates are set to remain at very low levels and quite strong guidance has been given on this, particularly by our new Bank of England Governor Mark Carney. This should avoid any shocks in this market and give us time to reallocate away from the fixed interest sector. We also repositioned fixed interest slightly, and mainly hold high yield, switching away from one of the largest funds in this space. We will be continuing to reallocate some funds away from this sector- some will be a change of fund provider and some a continuing reduction in weighting.
Sometimes markets and its participants get too short term in their outlook. Straight after the financial crisis in 2008 the last thing anyone would have wanted to own would have been bank shares and retailers. Yet in the last 12 months these have been amongst the strongest performing sectors. There has been a lot of pain in the retailing space but this year several retailers and banks are the best performers in the market. Although names like Comet have gone, companies like Dixons have more than doubled since August 2012.
I mention this because sometimes it does take a little time for some of the themes to play out and they don’t always come right straight away. We need to give some of the ideas time to work. Although we monitor all holdings all the time we are still buying on a 3 to 4 year time frame although often they get judged on a half years numbers.
To illustrate what has happened here in the UK with FTSE100 below is a chart for 2013.
As predicted the summer set back was quite dramatic and by the end of June it’s looking quite vulnerable. An investment in May in this market could still be showing a loss, however a month later when sentiment was weak it turned out to be another opportunity to buy the market. We still feel quite strongly that we will see a good year end running into first quarter 2014.
We feel our current asset mix is very well positioned for the current market with a few changes anticipated, other than those mentioned above.
The team and I will continue to work hard on your behalf in 2014. I hope you all have a decent break over the Christmas period, and I look forward to seeing you in the New Year.