Mid Monthly Update – October 2019

Being Different…
“Conformity is the jailer of freedom and the enemy of growth” – John F. Kennedy
Readers will no doubt be aware that we vehemently disagree with the industry template the investment herd follows. As a refresher, that view relates to indices, their construction and constituents. Why should an investor care about an index? For example, why should they care what percentage a stock represents of an index – surely you want to own the companies you believe in and ignore the rest? Given the conventional global equity indices are heavily skewed to the US and its largest companies, a portfolio managed against an index such as the MSCI World Index could mean you have a global equity portfolio that will ebb and flow in value according to the US Dollar’s movement against the Pound and the US equity market’s key stocks (see below).

The US represents 63% of the investment universe for those referencing this type of investing. In addition, the top ten stocks by weight represent 12.9% of the index. They are all US-based and well-known, representing 20.4% of the US part of the index. Basically, not that diversified. They are listed on the following page.
Both the pie graph above and the table overleaf have been sourced from MSCI.

For those multi-asset investors among you, tempted by a popular balanced approach between bonds and equities, bonds have done well over the past year to the end of September. However, when – like us – you’re aiming to provide a relevant and understandable outcome of UK inflation plus 3%, buying bonds yielding less than inflation makes little sense. This supposed low risk asset class has had something of a hiccup so far in October with ten-year gilt yields rising from 0.49% at the end of September to 0.63% at the close of business (source: Seemingly not a huge move but a 2% capital loss in a short space of time and yields still attractive to an outcome investor.
In short, the past twelve months have been tough in relative terms for our two offerings. We may not be the only ones but our focus is on investing appropriately and thematically in equities and in real assets (above inflation) to deliver over the medium to long-term (3 to 5 years) for our investors which include us. We know from experience there will be times when the US large cap stocks do well and they have attracted many passive assets (buy what’s gone up). Similarly, bond buying looked like a panic over the summer amid recessionary fears in developed economies and just as a reminder, recently there was as much as $17 trillion in outstanding debt with a negative yield. That’s right, you pay to lend your money!
Your Money (with us)
We believe in our current allocations to deliver the appropriate outcomes and have made just one minor change to the Dynamic Fund, putting cash to work in a long/short credit strategy with minimal interest rate exposure. We continue to avoid binary outcomes that might incur a capital loss such as event risk.
We greatly appreciate your ongoing support.
“Kites rise high against the wind, not with it” – Winston Churchill

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