Investment Report for October 2015

OVERVIEW

After three months of falls markets rallied round the world. This reflected thoughts that share prices had fallen too far too fast and that markets were “over-sold” (too cheap). The other driver of the recovery was talk that the ECB could provide additional monetary stimulus to improve the European economy.

In the UK the FT100 share index closed strongly ahead up +4.7%, but the US only rose by +0.7% as investors focused on the much anticipated increase in interest rates which is expected in December.

Fixed-interest securities made modest progress, up +0.5% as investors switched into higher-risk investments. UK commercial property continued its upward march adding 0.7% in October with continued overseas buying and a recover in rents underway around the UK. Apparently 50% of all UK real estate is now foreign owned.

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

Long-term Performance

(Source; Parmenion Capital Partners LLP)

PORTFOLIO REVIEW

All Portfolios

All portfolios improved considerably in October due to the global market recovery, however we underperformed our respective benchmarks due to the cautious position we have adopted.

We considered purchasing more equities across the board, but felt that although markets offered better value they hadn’t declined sufficiently to justify this.

Income Portfolio

The Income Portfolio gained +2.0% in October but under-performed its benchmark (the average mixed investment (20-60% shares) fund) which gained + 2.9%.

The under-performance is attributable to our cautious view of markets and overall defensive position.

No changes were made to the portfolio this month.

Balanced Portfolio

The Balanced Portfolio gained +2.7% in October but under-performed its benchmark (the average mixed investment (40-85% shares) fund) which gained +4.2%.

The under-performance is attributable to our cautious view of markets and overall defensive position.

No changes were made to the portfolio this month.

Tactical Portfolio

The Tactical Portfolio gained +3.8% in October but under-performed its benchmark (the average Flexible fund) which grew by +4.7%.

The under-performance is attributable to our cautious view of markets and overall defensive position.

No changes were made to the portfolio this month.

OUTLOOK

This month we want to focus on the oil price and what it may tell us; In October the oil price fell heavily as OPEC announced three-year high production levels, despite the low prices. They also rather hopefully added that they expect the market to be in balance in 2016. If so, it requires US shale production to be significantly reduced. This is something that is likely only at very low oil prices, because as soon as prices rise, most of the deposits become commercially viable again, effectively capping any oil price rebound.

This week Goldman Sachs were forecasting a $20 a barrel oil price – which would be great for drivers, but not so good for the oil industry. I’m wondering whether the collapse in the price of oil is permanent as new technologies boost the amount of alternative energy sources round the globe. If so, this would be a positive factor for all going forward (and not just from a financial point of view). The weak oil price is also probably indicative of global economic weakness and in the short-term implies that one should adopt a cautious stance.

Further worrying evidence of slowing global growth came as industrial production fell 1.2% in Japan and 0.5% in Europe, German investor confidence fell and the UK returned to deflation, whilst China confirmed a continuing slowdown.

We are considering buying back some equities now valuations have improved, but only in a modest way. Markets in Asia are now looking very cheap and we will probably focus our attention here. The concerns relating to currency weakness in the region once interest rates start to rise in the US are, in my opinion “in the price”.

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”.