Further to recent events in world stock markets, we thought it pertinent to keep you updated on how we currently view the markets and how we are managing our client’s portfolios during these somewhat turbulent times.
Firstly, events of the past couple of weeks come as no surprise to us. Regular readers of our Market Outlook reports ( www.msfs.co.uk/publications ) will be familiar with our view that politicians have been papering over the cracks for too long, rather than taking the decisive, albeit unpopular, action which would result in sustainable economic growth. August was predicted to be a rocky month in the stock markets as the uncertainty over the Eurozone, US credit rating and US debt ceiling compounded the holiday season when traditionally fewer trades take place.
Going forward, it is not easy to predict how the markets will behave over the next few weeks. So far, blind panic appears to have overtaken common sense, at least in the short term and from our perspective, the falls in the markets have been disappointing. We have become increasingly convinced during 2011 that the companies we are investing into are well managed, financially sound entities who are proving that they can operate efficiently whilst rewarding investors with increasing dividend payments. The punishment all companies have taken so far during August has been unremitting and both the strong and the weak have suffered.
We are convinced that matters are now coming to a head and finally the markets are forcing Governments to take decisive action and introduce genuine fiscal stimuli across the board to replace the bare minimum approach which we have seen to date. However the US Dollar cannot be replaced overnight as the currency of choice, nor can the Eurozone disband readily without impacting severely on the remaining AAA rated economies, regardless of what popular opinion supports.
We have entered a period of further uncertainty, but unlike in 2008, we do have a precedent of how to deal with these times. We have maintained a cautious stance since the crash happened in 2008 and we have continued with this strategy in spite of the pro-Western stance our benchmarks suggested – it just did not feel to us that the Western economies had been fixed. We will continue with this approach to try and minimise the falls. Obviously we cannot eliminate falls completely since market sentiment can often be indiscriminate, however, we are looking for opportunities to stabilise portfolios whilst seeking out mis-priced investments, ie trying to identify investment opportunities which we feel have been unfairly hit and therefore offer significant growth when markets rise. Volatility can be nerve-wracking, but it usually brings opportunity.
We must point out though that we are not trying to time the markets. We understand that our clients rely upon their investments both now and in the future. For that reason our portfolios are structured for the long term, but if we can find well thought out opportunities in the short term we shall try to take advantage of them without taking unnecessary risks.
We shall keep our clients informed in the usual way of changes we make to their portfolios, but if you would like to discuss our investment strategies in greater detail, please do not hesitate to contact us.
Tags: Stock markets, volatility, portfolios, US Dollar, Eurozone