Its Not Harry

Comment and opinion for retail investors in the UK

Portfolios

Watching Brief – January 2023

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Pottering About

Happy New Year to all my readers!

As this month’s briefing takes quite a detailed look at the current state of the macro factors that you might want to assess when thinking about your asset mix, I have not included the ‘Hit or Myth’ element, although I did have a topic in mind which I mention later on.  I will reserve that for another post. It won’t be a long wait!

The cloudy crystal ball

I could this month make sensational or amusing prognostications about investment markets in 2023; I do see articles along those lines in the professional investors’ media almost every day at the moment! It is a seasonal diversion, I guess and most people know that the very name of the month January is about looking both back and into the future.

Thinking and speculating are not the same thing!

How often do pundits actually come up with useful predictions?

I worked out a long time ago that one can actually assess the value of such exercises by looking back at the confident prophecies of the so-called experts made exactly one year ago and see how well they did. The preservation of easy to access past publications on the internet has made that a simple task.

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Midweek Musings – banking on your returns

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I don’t personally have any option for investing in UK bank or building society deposit accounts these days, as a ‘foreigner’, post Brexit. I am told by subscribers that with a bit of work you can get well over 2% on average on a range of instant access deposits. That is an improvement on the virually zero rates we had got used to, but not much relative to an inflation rate of 10%

Do you know that HSBC will give you 8%? You must be kidding, I know you will be thinking.

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Midweek musings – Santa Rally this year?

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After a healthy and sustained period of growth from mid October, global equity markets, as recorded by the MSCI World Index fell back a little in the last week, but the chart still has a solid looking recovery on the right hand side. I have suggested that the market has been poised to react to good news for some time and the slightly more dovish tone of central bankers, slowdown in consumption data and weaker employment numbers will all have been taken as leading indicators that the worst of the monetary tightening (ie rising interest rates and the end of QE) is behind us.

In the UK, the Hunt mini-budget brought the expected fiscal tightening (ie tax rises and spending cuts). That was all as expected and indeed, much had been leaked in advance to soften up expectations. UK markets were more fraught about the prognostications for the UK economy from the OBR, the Bank of England (which has certainly well and truly fallen out with the government) and global economic forecasters.

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Midweek Musings (fixed income investing, part 5)

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The remarkable political events of the last few days mean that the yields on UK Government debt (gilts) have been up and down like a fiddler’s elbow and that will have fed turmoil into fixed income markets in general. The iShares Core £ Corporate Bond share (a useful benchmark) is unsurprsingly down a scary amount year to date but has been up and down like a yo-yo since late September.

It remains my opinion that although there will be great opportunities to invest in fixed income assets for those who need something other than equities in their portfolios, and such opportunities have not existed for a long time, it would be a brave invesor who went into the market right at this moment.

Nonetheless, now is an ideal term to brush up our knowledge of the investment options.

I already covered the requirements of an investor wanting a slightly spicier alterenative to cash on deposit and now I want to address the requirements of investors who are looking for an asset class diversifier, or even a tactical play to make a ‘quick buck’.

Narrowing the options

A look at the list of investment sectors or peer groups published by the Investment Association will reveal a bewildering range of fixed income funds from UK Gilts to Global Emerging Market Bond (local currency). Someone with plenty of experience could mix and match funds from various peer groups and put together a package of funds with varying characteristics to diversify risk within the fixed income asset class.

Or you could choose a passive index tracker fund, like the Vanguard Lifestrategy series with a high bond component (which in fact true for most of the options) and you will get a fixed exposure to a variety of fixed income assets. For example the Lifestrategy 40 fund includes, among others, a large holding in global bonds, some UK governmant bonds (gilts) and also UK Index Linked Gilts. The Fixed Income style box from Morningstar records a high sensitivity to interest rate changes and medium credit quality. The fund has lost 15% so far this year (compare with a fund I review later) in Sterling terms, so hardly the lower risk option one might have thought from the traditional viewpoint or even the marketing material.

Picking bond funds for the novice is a nightmare, right? Potentially so, I suggest. But I can help!

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Watching Brief – October 2022

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Pottering About

Basics about bases

My slightly later than usual start to writing this piece has followed a brief recovery spurt in global equity markets, indicating that if there is even the merest hint of a slow down and reversal of the hawkish attitude of the US Federal Reserve, markets are poised and waiting to inflect to a positive or even bull run after a gloomy period now running to almost a year.

The ending of the 12 months since the current bear market got under way will see all the short term data look a bit different because of what is called ‘base effects’.   Let me explain.

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