Its Not Harry

Comment and opinion for retail investors in the UK

Education

Monday mashup – did Nige blink first?

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A couple of my readers have commented that global stock markets are not turning as positive as one might have expected following what seemed to have been the first signs of resolution of two of the major uncertainties: Brexit and the US/China trade war.

I suppose one can understand a lack of joy about the apparent progress in the trade talks as a single Trump tweet could write off weeks of careful work by officials.

My confidence about the likely result of the Uk General Election has not been taken on by the markets, at least not until today. With the Tories miles ahead in the polls and even traditional Labour voters not wanting to vote for Jeremy Cornyn, one would have thought it was a racing certainty for a Tory majority of some size, and that would allow a closing strategy on Brexit to become clear. I think businesses and investors are now more keen just to know what they will be facing, as opposed to worrying about what it will actually be. Many will have decided what they will do either way by now.

What do we make of that….?

What has changed today and instantly pushed up the Pound and the UK ‘home’ market (The FTSE 100 suffers when the Pound goes up) is Nigel Farage’s announcement that he won’t field candidates against the Tories where they would be expected to win (as I understand his position at this time).

He must have accepted that his future, which only exists if the Brexit party has at least a few MPs, was looking to be a short one if he had election results that comprised a number of also rans in seats that were gifted to Labour or the Liberal Democrats when the Brexit vote got split. He maybe even thinks this noble gesture will get him a job with the Government later (not likely in my view).

Time will tell, as ever, if this is proof that Boris and his ‘oppos’ have made enough of the right calls to get themselves 5 years in power. Given that Labour has made some genuinely Socialist policy proposals, the City will be more relieved than usual if the chances of a Labour victory are further reduced.

My feeling is that there is an opportunity to make a tentative start at buying into funds with exposure to the sort of UK businesses that have been subject to undervaluation because of Brexit uncertainty as opposed to their actual business models. Today’s figures on the UK economy 3rd quarter were also not too bad.

Watching Brief – November 2019

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Pottering About

I have recently been so bold as to try and define the Conservative government strategy on Brexit and their potential to govern in practice.  I was right to suggest that a General Election was their principal objective, ideally post Brexit with the public not contemplating remain or second referendum issues, but they failed to achieve the October 31st exit.

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Boris’s plan matures

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I wrote at the beginning of the month that Boris Johnson was going to maximise his chances of winning an election and I have to hand to him and his team – he has done it with some skill.

Off we go – Happy Halloween!

He has done what most English people I know think was necessary – tell the DUP that he can do without them if they are not going to offer any flexibility. That has allowed him to cut a deal and the fact that to do it, he made modest concessions will not do him any harm as most people are now just longing for the end of the process. The Europeans seem happy with it too.

He can put it to Parliament not really caring if they reject it – a rejection will now be seen by the majority of the British public and the right wing press as churlish and the EU heads of state will give up on the British democratic process.

If the deal is passed (which I think is the lesser probability without a big block of Labour MPs disobeying their Whips), then all well and good and although the path ahead is not easy, at least everyone at lasts knows that they can make a start.

If the deal is not passed, the PM will write a letter requesting an extension, but the EU will refuse it, in my judgment and I think in the minds of his advisers. I think the Tory stategists have always seen this as the ultimate scenario.

They (EU representatives of all sorts) have pretty much said that much in advance. If the only reason this hard fought deal does not go through is Parliament, then in their view no deal will ever go through so what would be the point of yet another extension.

I fear the short term consequences of a No Deal Brexit, but only because of the lack of a transition period. Most elements of the withdrawal agreement will have to be negotiated in other ways in any case. Planes must fly, people must travel, food and medicines must move. These are not optional. It is the likely chaos of sorting things out quickly that is a concern.

Leaving with a deal and a transition period will I think see a decent bounce in the price of UK and European shares. Leaving with no deal will have effects I really can’t predict, but I would be pessimistic.

Whatever happens, Boris will look to be the man who tried hard, Parliament will look at best foolish and at worst in need of wholesale changes. I think that will mean an election will see return of a Tory government with a big majority. I hope it is one that is really as ‘one nation’ as Boris claims he is.

Note that this an attempt at an objective assessment, not my personal approval of what has happened! As an investor, one has to put one’s own politics to one side and for the most part live with the politics of the markets.

Monday Mash Up 005

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Today’s post is more of the ‘thought for the day’ variety than a news update. With the Brexit talks reaching a real climax and the US and China still talking trade, I can’t add much of any value on the prospects for markets. My weekend comment on deflating soufflés looks to have been appropriate.

What has come up in a couple of discussions with NotHarry readers recently is something I thought worth emphasising with a brief post.

If you invest in a multi asset portfolio, actively managed or just a fixed asset mix of passive index trackers, you will be getting a diversified range of assets with built in risk controls based on the most up to date investment thinking. That does not necessarily mean the fund will deliver what you want (the reasons for that are for a longer article) but no-one could say they are not designed in line with good practice.

Why oh why do people believe that advisers know what they are doing when it comes to investments – many have no idea.

So why would you want more than one fund adopting such an approach? I suppose advisers would say to diversify your risk further? But if the two or more multi asset funds have similar asset mixes, are aimed at the same risk profile (hopefully yours) and statistical examination reveals that over long periods their prices have consistently moved almost exactly in line, what has been achieved? Zilch.

One fund may be called 80/20 and another Active Market or similar names implying something about the asset mix, but that is not diversification! One may use passives and other invest (more expensively) in the multi fund managers’ in house sub funds. They may even have slightly different stated objectives.

Believing that is enough is a schoolboy error – just assuming that multi asset funds are different because they have different labels. If one of a selection of funds is more expensive and it delivers no diversification whatsoever, it is an utter waste of money!

After the major stock market decline of 2000-2002 I assisted a very upset pensioner take a complaint to the Ombudsman service. He had been put in pension drawdown, arguably with good reason and assured his investments were diversified. In fact, they comprised a UK managed fund (virtually all UK equities), a UK equity fund and an international equity fund (with a UK weighting in it). Of course they were all very closely correlated and he lost so much money his pension income almost halved. He won substantial compensation, fortunately.

Nearly 20 years on and people are still being misled by advisers who don’t really know what risk management means.