OVERVIEW
The summer has really been a difficult time for investors with world markets all taking a tumble. Events have been driven by a stock market crash in China.
The Chinese market isn’t open for investment by Westerners, so there’s a very limited impact on us in the Western world. However, of more consequence is the underlying reasons; China’s rate of growth is slowing and is probably far less than official government statistics imply.
Why does this matter? China has been one of the main buyers of western technology and resources which have fuelled growth in Asia and round the world. A slow-down in the country implies reduced export orders for us in Europe, the US and elsewhere.
The upshot of this shock, when combined with thoughts that interest rates are due to rise soon in the US, meant markets globally have had a tough time of it. The UK market fell by -6.0%, the US market by -2.9% and European markets by -2.3%. The fall in the US and Europe was mitigated by a strengthening of the US Dollar.
Gilt prices nudged up, offering a little protection, but corporate bonds also fell in value. Once again, the only bright spot was UK commercial property which gave investors yet another dull, but nonetheless positive gain of +0.4%.
Here is the chart of the FTSE 100 index for the last six months:
…and the last five years, which puts this into perspective;
FUND PERFORMANCE
Short-term Performance
| Parmenion Portfolio/Index | One month Performance to 31 August 2015 |
One year performance to 31 August 2015 |
| Income Portfolio | -1.6% | +4.4% |
| Average Mixed Investment fund (20-60% shares) | -2.7% | +0.8% |
| Balanced Portfolio | -2.3% | +4.6% |
| Average Mixed Investment fund (40-85% shares) | -3.8% | +1.5% |
| Tactical Portfolio | -3.5% | +5.6% |
| Average Flexible Investment Fund | -4.2% | +0.8% |
| MSCI UK | -6.0% | -5.8% |
| MSCI World (£) | -5.8% | +4.4% |
| IBOX Gilt | +0.3% | +6.5% |
Long-term Performance
| Parmenion Portfolio/Index | Three year performance to 31 August 2015 | Five year performance to 31 August 2015 |
| Income Portfolio | +28.0% | +47.1% |
| Average Mixed Investment fund (20-60% shares) | +17.4% | +28.4% |
| Balanced Portfolio | +28.9% | +46.4% |
| Average Mixed Investment fund (40-85% shares) | +24.3% | +39.4% |
| Tactical Portfolio | +34.8% | +49.9% |
| Average Flexible Investment Fund | +23.7% | +38.6% |
| MSCI UK | +20.7% | +42.2% |
| MSCI World (£) | +34.0% | +71.5% |
| IBOX Gilt | +9.2% | +28.1% |
(Source; Parmenion Capital Partners LLP)
PORTFOLIO REVIEW
All Portfolios
All portfolios suffered significant falls in August, reflecting global market weakness due to concerns surrounding growth in China. However, over one year all portfolios have turned in modest gains compared with the UK stock market which has produced a near -6.0% loss.
Income Portfolio
The Income Portfolio lost -1.6% in August but out-performed its benchmark (the average mixed investment (20-60% shares) fund) which fell by -2.7%.
The out-performance is attributable to our heavy over-weight in UK commercial property and the purchase of a low risk “Absolute return” fund run by Standard Life as a defensive measure.
No changes were made to the portfolio this month.
Balanced Portfolio
The Balanced Portfolio lost -2.3% in August but out-performed its benchmark (the average mixed investment (40-85% shares) fund) which fell by -3.8%.
The out-performance is attributable to our over-weight in UK commercial property and modest exposure to a low risk “Absolute return” fund run by Standard Life as a defensive measure.
No changes were made to the portfolio this month.
Tactical Portfolio
The Tactical Portfolio lost -3.5% in August but out-performed its benchmark (the average Flexible fund) which fell by -4.2%.
The out-performance is directly attributable to our modest exposure to UK commercial property and UK smaller company shares, which were relatively resilient.
No changes were made to the portfolio this month.
OUTLOOK
The issue of Greece is now on the back burner as the latest bail-out means that the problem shouldn’t resurface for a number of years now. Ukraine has also had a little publicised bail-out from the EU. Clearly its problems aren’t over yet, but at least some modest progress has been made here.
We had previously flagged-up that China was an issue. The markets are digesting the news. One could in theory purchase shares that have dropped in value significantly over the summer, but we are reluctant to do so, as we still don’t feel that there is real value to be had yet.
The next issue that will come to the fore imminently is increases in interest rates. These may be pushed back a little due to the melt-down in China, but they are on the way. We feel that there will be a better buying opportunity when the first rate rise is announced.
PS Don’t forget the usual risk warning for all long-term investments: “The value of units can fall as well as rise, and past performance is no guarantee of future performance. The value of income payments from investment funds is not guaranteed and can fall as well as rise”.
