Comment and opinion for retail investors in the UK
I always want to write this piece without
mentioning Brexit but given the changes of the last couple of weeks, I have to
bring to your attention a flavour of the opinions of strategists and commentators
in the investment market and my own take.
When Mrs May was Prime Minister, political sketch writers tended to suggest her Brexit department ministers had no plans and that she just robotically repeating ‘red lines’. In the end civil servants in the UK and the EU came up with a technically sound withdrawal agreement, but as we know a chunk of the Tory party really don’t like it. So as a consequence we have a new Prime Minister.
The unsurprising election of the new Tory leader and therefore (at least for a while) Prime Minister is bound to be of interest to investors, because it changes the dynamics of the everlasting Brexit saga.
In the short term, any stock market reaction will be ‘false’ because there is no new certainty. In a few weeks, the range of possibilities will narrow down.
The EU wants post Brexit Britain to deal with it in as similar s way as possible as now, because that is in its best interests. Arguably, if free movement was stopped, so would most British people – the sovereignty and common market stuff is less motivating for many, although I do realise not all.
I think the EU will not fall over at any new bravado from the new PM, but may well want to offer him enough concessions to get a deal through Parliament. After all, they are politicians too.
Investors need to pay more attention to what the situation looks like in late September. A no deal exit is without any doubt going to impact UK investment markets like a thunderstorm, if not a tornado. A smooth exit with a managed deal (sort of softish) would see a relief rally.
What do I think will happen? I really have no idea, so am keeping plenty of cash on hand to maximise my options.
I frequently read the word ‘nimble’ being used as an adjective to describe apparently desirable investment products. I just read it in a quote from a Portugese investment adviser, so this is not a UK specific trend, even if it is the English language.
The implication is that such funds will do better because they swap assets around quickly as a reaction to global events, financial or otherwise.
I am sorry to say that the idea of an investment fund being nimble is about as sensible as the idea of an oil tanker being nimble and being steered like a speedboat. It is nonsense.
What does ‘nimble’ mean? Well as implied by the heading I think of the word in the context of the children’s rhyme – ‘Jack be nimble, Jack, be quick, Jack jumped over the candle stick’ (referenced obscurely in that all time classic song, American Pie). So I take that to be pretty athletic!
Agile, quick moving, lively and so on come up in the dictionary.
Investment is a long term process. Investment funds are run to stated objectives and mostly against benchmarks which must be published. So they are typically only ever going to make small changes to their holdings in the very short term. Even if a multi asset fund reacts to say an interest rate change that was unexpected, the most it is likely to do is shave a few percentage points off an asset allocation and add the same somewhere else.
So if you get told that XYZ investment is selected because the manager is nimble, assume that the adviser has seen him or her on the dance floor! A fund that is flexible and relatively unconstrained in its asset allocation may be a good idea but calling it nimble is implying alacrity followed by bold, speedy changes of direction, when you are more likely to get a bit of ‘left hand down a bit’. Nimble it will never be!
As an aside, advisers often talk of ‘nimble’ funds at the same time as they are shoe horning clients into multi asset funds with very specific asset mixes that won’t change and yet are simultaneously selling out of a custom built portfolio where with some effort, reasonably prompt changes of asset mix could be made – not nimble, but at least purposeful. Smoke and mirrors.
Here are data for 2 funds (Source: Morningstar, July 2019)
| Fund 1 | Fund 2 | |
| Rating | 5 stars | 4 stars |
| Fees | 0.22% pa | 1.99% pa |
| Equity/Fixed Income Mix | 60/40 | 100/0 |
| Volatility (3 year SD) | Low | High |
| 3 year return (annualised) | 8.21 | 14.09 |
| Year to date return | 13.82 | 24.57 |
Which is the best fund?