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Our Spring update analyses the continued recovery in the markets as the world adjusts to the presence of Covid-19. We examine how new the experience of Covid really is with a look back at the Spanish flu of 1918.
September Quarterly Report
June Quarterly Report
Our June Quarterly Report looks at the markets’ recoveries around the world after the Covid sell-off. Our client education piece takes a closer look at the value premium - what accounts for its absence in recent times and can it be expected to return?
In our March Quarterly Report, we discuss the reactions of markets around the world to the coronavirus pandemic and the policy responses by governments.
We also include a discussion of volatility and how recent volatility levels compare to that of previous crises. High levels of volatility can be uncomfortable for investors, but it is representative of the risk/return relationship that defines investments.
March Quarterly Report
Our December quarterly report gives a roundup of what was an exceptional year for asset returns, particularly in our home market with New Zealand equities returning over 30% in 2019.
Appended to this is Dimensional Fund Advisers’ “2019 Year in Review” report.
December Quarterly Report
Our September quarterly report discusses the positive effects of interest rate cuts on both bond and equity markets. We also make the case for a new asset class to be included in our model portfolios - global infrastructure, which provides further diversification and a defensive aspect.
September Quarterly
Report
June Quarterly Report
In our June quarterly report, we discuss the impact of potential further cuts in interest rates on the investment markets. The outlook remains positive as a result, despite significant volatility caused by political events such as trade tensions.
Our client education piece explains sustainable investing and how we incorporate it into our model portfolios.
March Quarterly Report
The investment review in our March quarterly report discusses the rally in markets in response to an easing of central banks’ policies on interest rates in both the US and NZ. The outlook for global growth remains positive.
Our client education piece this quarter addresses the practice of securities lending to enhance portfolio returns. We explain the technicalities of the process and how the income bolsters investment returns.
December Quarterly Report
In our Investment Market Review, we discuss the fall in the markets in the fourth quarter of 2018 and whether the recent sell-off is justified or an over-reaction to fears of recession. Over January markets are in general up on the December close but no one knows what the next short term move in valuations will be. What we do know is that the market volatility that has been experienced in the past few months is not unusual from a historical point of view. We have seen market declines and subsequent recoveries regularly occur in the past. In fact, post WW2 data confirms that the US market has a decline of 10% or more on average every 18 months with recovery times after a sell off usually within a period of months rather than years.
The recent volatility comes after an unusually stable and prolonged period of strong share market returns. Accordingly, we take the opportunity in this report to remind clients of the fact that investors are rewarded for bearing market risk (volatile periods) over long horizons. Past evidence confirms that staying the course with an appropriately weighted portfolio for your circumstances is required to harness these long run rewards.
News headlines last Friday highlighted a drop in world markets. Markets have recovered somewhat since last week’s drop and while we plan for volatility in our modelling, it is never welcome, but it is anticipated from time to time.
To put it in context, global share market volatility in the past week saw valuations down since the start of the month partially offsetting the gains of the previous twelve months. Our assessment is that this has been a sentiment driven sell-off with markets digesting a range of issues over the last week; among them rising interest rates in the United States, trade concerns, and apprehension about profit margins as we enter the third quarter reporting season this week.
However, looking through this volatility, there are a range of underlying fundamentals that remain positive for global markets. Three key themes underpin share market valuations:
• Economic growth: leading surveys and leading indices point to further expansion. Markets have historically fallen in reaction to the fear of recession and presently traditional recessionary indicators are not present (such as interest rate credit spreads, significant inflation or inversion in yield curves).
• Earnings growth: company forecasts still remain positive with expectation of further growth over the next 12 months; and
• Valuations: the MSCI global share market index is now valued at 14.7 times annualised company earnings. This is 10% below the long run average multiple of 16.
Whilst further bumps in markets will inevitably occur, our client portfolios are highly diversified, and the overall portfolio weighting is based on individual risk tolerance and objectives. This long-term strategic approach to investment is supported by substantial evidence as we position for both stable and volatile markets.
September Quarterly Report
In our Investment Market Review we discuss the continued theme of positive performance of equity markets, notwithstanding trade tensions on the global stage. The NZD continues to weaken, bolstering returns of unhedged global securities.
We also comment on the Australian Royal Commission’s enquiry into misconduct in the Australian banking and financial services sector. This underscores the merit of truly independent advice to protect clients from the conflict of interest implicit in some advice channels.
