Example news piece
The following is an extract from a news update which we email to our clients on a monthly basis. This is an example of the content we produce. If you would like any further information then please do not hesitate to contact the team using the Contact Us link at the top of the page.
June 2018 Mid-Monthly Update
June has seen the start of the new series of the extremely popular Love Island on ITV. If you have teenage children and you want to converse with them on a subject where you have an opinion that might have value, it is a chance to be inclusive and judgmental about individuals projecting a particular image.
And so we move from Majorca to Sentosa Island off the southern tip of Singapore where there was a lot of love apparently on show from Donald Trump and Kim Jong-un and much at stake too.
At the end of the two day summit North Korea’s leader and the US President much would appear to have been achieved. The prospect of a nuclear weapon free Korean peninsula will please not only the US and South Korea but China too as it would mean less US military presence in the region. However, without a timetable for the denuclearisation of North Korea, the sceptics concerns are understandable. We shall see but with two leaders who seldom like to be out of the limelight, the path forward is unlikely to be uneventful.
The FIFA World Cup in Russia is upon us this week. I last attended a World Cup match at Italia 90 when I ventured to Naples to see England beat Cameroon en route to the semi-finals. Unfortunately Italy won’t be at the World Cup having failed to qualify. Much has been happening in the country of the Azzurri. After a political mess that threatened a constitutional crisis, there is a populist government in place. Italian bond yields have oscillated wildly during this process showing the vulnerability of heavily indebted countries in developed as well as emerging countries. The European Central Bank (ECB) meets this week and has mooted accelerating the withdrawal of its bond buying programme – possibly because they already own too many Italian bonds!
There is an excellent show currently in the west end of London featuring the music of Tina Turner. However, TINA is also the acronym for ‘there is no alternative’ to equities. Given the travails of bond markets in 2018 and the recovery in equity markets this quarter, exponents of TINA will be feeling pleased but with tariffs and protectionism on the up, curbing global growth at the same time as margins are under pressure from labour costs, there is need to avoid complacency particularly in labour intensive industries. As equity indices have recovered towards previous highs, the prospect of a turn in the markets has risen. We remain vigilant.
The aim of T. Bailey Asset Management is to deliver meaningful outcomes for our investors by thinking logically about investing which means not being a ‘me too’ offering. As such our investing is on a thematic basis. The detail of this approach can be found on our website under the ‘Thematic Investing’ tab or through this link https://tbaileyam.co.uk/key-investment-themes/
One of the key influences in delivering a consistent return profile is what you don’t invest in. For a multi-asset fund like Dynamic, this might be most bond markets as they have been manipulated by central banks to the wrong price (too high) and yield (too low). At the turn in the interest rate cycle after years of near zero interest base rates, sensitivity to any upward changes for companies is more acute than in previous cycles.
The US is beyond the turn and this week the US central bank, the Federal Reserve raised its target rate again, this time to 1.75% to 2% with further rate increases signalled for 2018 and 2019. The US government bond market would appear to believe a slower US economy will ensue as the gap between the 2 year yield of 2.56% and 10 year yield of 2.96% has narrowed to just 40 basis points or 0.4%, the lowest since 2007 (source: Bloomberg). A flattening yield curve often predicts a slower economy, an inverted yield curve can be a forerunner to a recession. The graph below sourced from bondsupermart illustrates the change in yields and the yield curve from a year ago (yellow) to today, June 14th 2018 (red).
This makes investing in the debt or equity of heavily indebted/leveraged companies a non-starter. Our managers understand this and consequently the interest rate sensitivity of both TBAM portfolios is low. Investors in passive, index-related products are often fully-exposed to that risk.