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Watching Brief – November 2022

1st November 2022 by Mark Potter Leave a Comment

Pottering About

I will progress to my observations on markets and the investment climate shortly but I want to start by introducing a slight change in the content of my monthly posts – a subtle refresh, if you like. The Digging Deeper part of this monthly missive has now covered enough topics to form a small reference book and until I have a list of new topics to cover, I am giving it a rest.

Instead, I will return to an idea that long term readers may vaguely recall. This will be headed ‘Hit or myth’ and will each month put a few supposed ‘ facts’ about the economic, financial and investment climate under my quality control spotlight for testing to destruction.

There are many such ‘givens’ recycled through the mass media every day, often referenced by people who ought to know much better – like politicians and the financial or ‘money’ editors of quite serious publications and broadcasters – but some of these accepted truths are in fact imagined or based on what I think are false premises.

Much of my analysis is on offer because of one of the few advantages of being older now, that is having many decades of working in the financial services sector and just as long reading and viewing extensively to try and understand the human condition. Not Harry may not have the supposed (Biblical) advantage of ‘grey haired wisdom’ but that is only for want of raw material!

You may well disagree with some or even all of what I suggest is the reality, as opposed to the myth. The constraints of a blog post mean that I am not able to write a thesis in support of my opinion and in most situations, it does not really matter what I think. The world will carry on as it wants to, of course.

I am only hoping that I can prompt my readers to take a skeptical view of the ‘accepted wisdom’’ and that this will better inform your asset allocations decisions. At times, what I predict is a nonsense does eventually prove to be exactly that (eg valuations of shares like Nikola, ASOS and THG, or the incredible track record of certain Baillie Gifford funds) and people who shared my skepticism may well have benefited in their pockets!

You could not make it up

This heading of course refers to political events in the UK over the last month. If October 1987 gets remembered for Michael Fish and the hurricane that he so confidently dismissed, October 2022 will forever be associated with the name of Liz Truss.

The (predictable, and in fact actually predicted) consequences of the Kamikwasi not a budget mini-budget are now largely behind us, apart from the damage done to the UK’s reputation internationally and the opening of a rip in the relationship between the Treasury and the Bank of England. Apart from enhancing the case for fixed income assets which I had been exploring anyway, I can’t find anything relevant to say about what is now a dead event and we must now await for the proper, normal(ish) Autumn Statement due in a couple of weeks.

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Midweek Musings (fixed income investing, part 5)

19th October 2022 by Mark Potter Leave a Comment

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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Midweek Musings – Bonds Q&A

11th October 2022 by Mark Potter Leave a Comment

I am pausing my mini-series of posts on selecting bond funds for specific objectives to write about some high level issues, because what has been happening in the fixed income markets recently has been so remarkable that it is being described as a ‘first’ by specialist managers with over 30 years experience.

I will pose and answer some questions but would welcome others from readers with a view to publishing the answers in another post. Please use the comments option or email me if you prefer.

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Watching Brief – October 2022

7th October 2022 by Mark Potter Leave a Comment

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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Midweek musings (fixed income investing, part 4)

3rd October 2022 by Mark Potter Leave a Comment

This post is early because I am away for a few days birdwatching the mass migrations on the edge of the Baltic Sea for the rest of this week. My monthly briefing will conversely be late, but given the political events in the UK, waiting a few days to see what further fallout there is from the special fiscal operation may be wise anyway.

In the post called ‘Getting your Fix, part two’, I proposed 3 possible motives for considering fixed income investments now the market has inflected and all the factors I outlined in part one, plus the recent Chancellor’s proposals in the UK, are in play. This week, I want to see how you would approach research into the market if your objective was the first one I suggested: earning a return on money that would otherwise be in cash.

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Midweek Musings – Spoilt for Choice (fixed income basics, part 3)

27th September 2022 by Mark Potter Leave a Comment

I started this series of educational posts by outlining current factors that make fixed income assets a very different proposition to what they were a year or so ago. Since I did that, some factors have been amplified.

The UK markets had been waiting to see what a new leader would do to help people with energy bills and was nervous about the likely impact on the public finances but almost everyone was astonished (even those who approve of the return to Reagonomics) by the special fiscal operation (or Watership Down as some have called it) announced at the end of last week. The impact on fixed income markets has been instant and dramatic with yields rising to levels not since before 2008.

Since I started writing this, the Bank of England has announced that it is reversing its plan to start quantative tightening and going back to money printing. I assume this means that that want to clamp down on inflation by printing money – a novel new economic theory, not exactly as imagined by Milton Friedman and associates!

A decline in the value of Sterling may still turn into a currency crisis and such crises tend to run out of control until they hit the buffers. All this is happening as I write so I have no intention of offering guidance on what to buy and when, or even to say if the fixed income asset class is yet attractively priced (it certainly will be before too long, I guess).

What this week’s post will do is explain how the fixed income market is divided up for access by retail investors. This information can then be matched up with your objective to see what funds universe might meet your needs.

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