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Its Not Harry

Comment and opinion for retail investors in the UK

Mark Potter

Midweek Musings – Sell in May?

17th May 2023 by Mark Potter 2 Comments

An aside

A quick introductory comment: Some indirect feedback from subscribers makes me think that I have been making these midweek updates too long!

I am going to make them shorter for now although once a month I will write a ‘longer read’ two or three part market commentary and technical explainer.

Sell in May and go away?

All readers know this old stock exchange maxim, I am sure. I have written about it in the past and I think, without doing any actual new research, that over a very long period, it would have proved useful more often than not.

Let’s take a look at 2023 to date by checking returns on the major equity asset markets. I am ignoring fixed income as I don’t think the mantra was intended for that market!

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Filed Under: Markets, Members Only, Monthly commentary

Midweek Musing – is tactical asset allocation worthwhile?

10th May 2023 by Mark Potter Leave a Comment

What is tactical asset allocation?

To answer that question we need to start by understanding the preferred starting point of the ‘alternative’ strategic asset allocation. This is the concept of building a portfolio with a range of asset types with varying degrees of correlation so as to achieve returns in line with our objectives at an acceptable level of volatility.

Investment theory developed over many decades suggests that the ‘right’ asset mix will see returns inevitably impacted by short term systemic changes in market direction, but that the worst volatility will be smoothed out in a well designed portfolio and over the long term returns will be reasonably predictable. Because the market’s short term volatility is in effect allowed for in the model asset mix, provided no major cash flows in or out take place, the asset mix can be generally left alone.

The idea of a well diversified long term mix of equities, bonds and maybe property, commodities and cash is the foundation of all multi-asset portfolios although some narrower equity/bond mixes are promoted as low cost ‘risk controlled’ and ”buy and forget’ products by all sorts of invesment advisers from Vanguard and BlackRock with their passive index trackers to expensive wealth management firms with their model portfolio offerings.

Although I started by saying that what I am calling strategic asset allocation is the alternative to tactical asset allocation, that was really not accurate. Tactical asset allocation is an overlay, or development of strategic asset allocation.

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Filed Under: Academic theory, Asset Allocation, Members Only, Monthly commentary, Passives and Trackers, Portfolios

Watching Brief – May 2023

1st May 2023 by Mark Potter Leave a Comment

All my own work – not written by ChatGPT

Pottering About

No clear direction, but plenty of pessimism

The push me/pull you tug of war in stock market valuation judgements continues, with the pessimists seeing more central bank rate rises and recessions all over the place and the optimists predicting the end of the monetary tightening and the brakes coming off a little.

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Filed Under: Economics, Education, Markets, Members Only, Monthly commentary

Midweek Musings – Slicing and Dicing

26th April 2023 by Mark Potter Leave a Comment

This post was prompted by a conversation I had with a subscriber this week, but I will have touched on the topic in discussion with quite a few readers in recent months.

I am referring to the concept of looking at your porfolio data through different data windows when conducting a review. This is something investors will find useful as they get more experienced at periodic reviews and in processing their data . For those who are not Excel aces, I can offer a template spreadsheet and some training in using it for a modest temporary subscription increase. In all cases, I am happy to help subscribers paying for personal support at no extra cost if you just want to better understand the idea.

The essentials

There is already on the web site a series of articles in the ‘How To’ section on making sale decisions, reading Morninstar X-Rays (an essential part of any review) and a worked through example of a full rather over deferred porfolio review.

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Filed Under: Education, Members Only, Monthly commentary, Portfolios

Midweek Musings – Jupiter’s sun sets?

19th April 2023 by Mark Potter Leave a Comment

An announcement that Jupiter was closing the Luxembourg arm of its Asian Income fund, a fund that has had great relative performance since it was launched specifically for Jason Pidcock (who came to Jupiter with a solid personal reputation as a sector specialist at Newton) is at first mystifying, given that the UK share class of the same fund appears to be well supported.

The PR explanation given is that the European market had not taken to the fund and the sub fund had raised less than £20 million. I would have thought that the offshore share class carried very little extra expenses other than those relating to the Luxembourg listing and compliance, but maybe there is more to it than that. The press release commentary published in my trade newsfeed could have been more appreciative of Jason’s excellent work for investors and his great judgement in minimising China exposure in the fund, which was why I have owned it for a while recently, and had previously made good money with it from launch before banking a profit.

There is no news that the UK fund will close and Trustnet lists it as holding over £1 billion in assets, so that seems unlikely on purely commercial grounds. On the other hand, my intuition is stirring up worries about what may be happening at Jupiter. A whole block of ESG focused managers left not long ago, even though Jupiter had a long history of running ecologically focused funds.

I think the relevant context is that the company has had a recent change of MD, has had its shares shorted by several hedge funds and is apparantly (according to The Times) at this moment the subject of ‘activist investor pressure’.

We can easily forget that many small and medium sized fund management groups are ordinary UK listed firms with the founding shareholders now owning only small percentages of shares and in many cases most of the free float of shares being in the hands of other competitor fund managers, or as in the case of Lindsell Train, for example, a big block of shares being owned by an associated Investment Trust which at least keeps control more or less with the founders and their allies.

This means that fund management firms can become takeover targets, be subject to short seller pressure and have boardroom bustups just like any other business.

The relative underperformance of the UK stock market over most of the last few years until 2022 and a weaker Sterling plus the glut of gloomy predictions for the UK economy (not really a connected factor, in truth) means that there are already plenty of vultures circling, mainly US based, to acquire and strip out cheap UK assets. This may be to our advanatge if we own UK smaller companies or special situations funds, because the managers of those funds know how the game is played and will be holding blocks of shares in takeover targets.

However, I am less happy about the situation at Jupiter in terms of staff morale and motivation. All of the above is hardly going to feel positive if you are long standing employee who was used to working for a friendly British firm that respected its staff and now the cold wind of US capitalism is whistling around your desk! I would take a modest bet that some of the better managers will jump before they are pushed.

In terms of fund research, I would suggest that Jupiter must now warrant at least an Amber light.

Filed Under: Funds, Members Only, Monthly commentary

Midweek musings – follow up on April Monthly Briefing

5th April 2023 by Mark Potter Leave a Comment

Having had a couple of chats with subscribers since I published my Digging Deeper article on ways to objectively assess the merits of asset classes (the supplied example being regional, the UK vs China), the feedback and the normal ‘I should have said that’ thoughts prompt me to add some supplementary remarks.

Firstly, I should have offered an over arching reminder that when looking at asset selection, a highest order criterion is the level of diversification that can be achieved.

How can you test that? A quick way is to pick funds in each of the main asset sectors you already own and the one are considering, without too much research (eg use funds you actually have plus the II Ace lists for an example new fund). Then you could build a watch list with equal amounts of each fund. You don’t need to replicate every part of your existing asset allocation, just the main blocks (say those representiing 10% or more) Running an X-ray on that watch list will then reveal the correlation if you look at what I call the ‘staircase chart’ on page 2 of the pdf variant.

There are quicker intuitive ways of checking diversification that come with experience. For example, you will soon work out that adding a UK fund to a European or US fund of similar market capitalisation does not add much diversify, nor will buying a technology fund if you have lots of sustainable equity holdings.

You should also bear in mind what you have worked out in your analysis. If for example, you had decided in late 2021 that interest rates were going to rise from a very low base, you ought to have also worked out that when those rises started to come through, past data suggesting fixed income was inversely correlated with equities would not be much use – the new situation would break that realtionship! If you did not, don’t feel too upset, as it seems large numbers of bankers and multi-asset fund managers failed to work that out, or at least to do anything about it!

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Filed Under: Asset Allocation, Education

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