Its Not Harry

Comment and opinion for retail investors in the UK

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Watching Brief – February 2023

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Pottering About

Last month’s article taken together with my weekly blogs since have exhausted my capacity for pontification on the direction of markets.  I will not write anything new on that subject here, but for ease of reference, I reproduce below the conclusion of my January briefing.

  • Fixed income assets with higher duration look much more attractive although buying now would be for early adopters who may see some losses before they get rewarded.  Personally, I often both buy and sell an asset class a little early.

  • Quality global growth companies are oversold due to the over discounting of future growth for higher interest rates that won’t last that long.  Businesses with strong market share, pricing power and large customer bases buying products that don’t need re-inventing are currently at very fair prices, maybe below half price on what they were 18 months ago.

  • If recessions are not long and deep, smaller company funds are well paced to bounce back faster than funds that are mostly mega cap and into energy stocks.

  • Geographically, the North American market looks to me to be the least risky, Europe is probably priced for more risk than is realistic and UK businesses can (surely?) only have better times ahead after the almost eternal blundering of the political classes for many years.  In the Asia Pacific region, Japan may for once be a profitable call as the Yen has potential to strengthen (Japan is the only place where they probably welcome inflation!)  and China looks to me to be a market still with potential but undermined by politics.  Other emerging markets may well benefit from China’s less friendly positioning to the USA and Europe.

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Midweek Musings – and they’re away!

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The heading is a horse racing reference. We are now one month into 2023 and it is possible to see how the runners and riders are positioned at the first hurdle/bend in the track.

You will recall that I have so far this year pointed out that we started the year without a clear case for adopting either a positive or negative attitude to equity markets; that fixed income funds with longer duration looked like a no brainer, and that the case for returning to China for equity growth was being made without wholly convincing me.

Some market data

This chart is courtesy of one of my subscribers, Eugene. It suggests that all the main equity markets had a decent start to the year but that China has really flown since November 2022 – the end of the Covid lockdowns. The US (in Sterling terms) was the least profitable place to be invested. Note carefully the relatively short time period when thinking about this data. Also note that the UK All Companies sector will not reflect performance of UK value or contrarian funds over the last year or two.

[Read more…] about Midweek Musings – and they’re away!

Midweek Musings – China in your hand?

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Last week I summarised two opposing but more or less equally arguable sentiments on the macro economic climate. This week, I will comment on a specific market and one of the most interesting ones for investors, that capitalism within communism investment opportunity that is China. In this case all the opinion is positive!

All is now rosy?

One of the Citiwire investment specialist publications recently published one of its ‘quick survey’ click through articles asking 6 or 7 fund managers what they thought about investing in China and they were surprisingly (to me) 100% positive. One even said we have passed an infection point and all the worries we had about China are behind us.

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Midweek Musings – Poles apart

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Every day, weekends included, a vast amount of news comes our way. I read mainstream news from the Uk and USA, using multiple online resources to get a balanced view and I also see ‘trade’ newsflows from investment companies and the specialist media such as Citywire. In addition, I watch specialist webinars and listen to some podcasts.

I hope this all postpones the onset of dementia!

That podcast was just TOO boring!

Distilling down what multiple experts think is going to happen to investment markets and asset classes is a relatively automatic task for the NotHarry little grey cells. At the moment, I would say there are 2 distinct and very different schools of thought, both of which have proponents of good reputation and credibility.

The soft landing case

This goes along these lines:

Inflation is coming under control, economic growth has been braked but not killed off, corporates are still making money and central bankers will slow the pace of rate rises and in due course start cutting rates.

It is clear that the fixed income markets have been driven by something like this point of view since Octover or November 2022 and equity markets quickly followed along.

The Cassandras

Knowing they are never wrong and that you will regret not believing them, the other experts suggest that inflation will be much harder to constrain and central banks are quite prepared to force a recession to increase unemployment and frighten consumers. To do that they will keep putting up interest rates which will reverse recent foolishly optimistic gains in the fixed income markets and start the sort of cycle that can only be very bad news for equities.

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Midweek Musings (plus Hit or Myth)

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Some confidence but not universal

We are now far enough into 2023 to get some idea of the market mood. It always takes a couple of weeks to see if the big players are pessimistic, raising cash and not adding to equity holdings, or nervous about missing out on a first half pick up in equity valuations and thereby blowing their bonus prospects.

This year, although there are many high profile commentators, including Terry Smith of Fundsmith, predicting a poor 2023 for a variety of reasons which are not all factual, I think that the fear of not being in the market is more powerful than a preference for cash with seriously negative real rates of return.

A curiosity has been a jump in the price of gold. I guess that this might be because it has become the next most interesting thing to speculate in for those mainly younger players who are now disillusioned with crypto.

It is still very early in the year and of course one cannot predict the impact of major events, some of which we will be surprised by, but I am at the moment feeling optimistic about equities and bonds, very negative about real estate, both commercial and residential,and generally pleased that equity markets are priced on more normal measures after a couple of years of folly.

Sunny times ahead?

I will comment on fixed income funds shortly as a number of my readers have been doing useful research into what you can find by way of funds in that asset class and after a period of owning not a single bond fund, I am moving some money into fixed income

Now I want to offer the second, late, part of my normal monthly output.

Hit or Myth

This time the claim is: Past performance is not a guide to the future

I can imagine you are thinking that this is a bit of a waste of time – regulators make sure you get told the above every time you buy any investment and I myself am always warning people off of using performance alone to pick funds or review recent portfolio performance.

So this is a hit – it must be true, surely?

In fact, if you apply an intelligent interpretation to the exact statement, it is in many ways a myth.

By one must qualify that contradiction by saying that past performance, when understood and used to understand a current valuation, may very often be a useful guide to the future.

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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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