June 2019 Update

Since our last investment update, a lot has happened. Theresa May, the Prime Minister, has stood down as her party's leader and the race for her potential replacement has begun in earnest (with lots of bickering of course!). As before, we had hoped that the political turmoil that the UK has experienced would be clarified and that a path forward could be demonstrated to both the UK public and the world at large. With the new deadline for Britain's exit from the EU set at end of October 2019, the current situation remains unchanged. The European elections are now behind us, and our involvement in the future of the EU still remains a mystery to all, with the Brexit noise unabated.

We have also seen significant negative press in recent weeks on the situation of a 'star' fund manager, and the suspension of a UK investment fund as it struggles to perform, or to maintain liquidity for its investors. The fund continued to receive promotion by two large platform/advice providers in their 'panel funds' even after the revelations and this position has also been revealing, if not exposed, as this story continues to unfold. As an independent company, we maintain an independent stance to the allocation of investment funds, as we note in our recent blog here: https://www.chaptersfinancial.com/blog/fund-allocations-need-not-be-from-a-panel

It continues to be noteworthy that since the start of the year (02 January to 09 April 2019), we've seen the following examples in investment markets:

Market Index

(02 January and 09 April)

Increase over period (approximate)

FTSE100 (UK)

6,734 – 7,425


FTSE 250 (UK)

17,586 – 19,433


Dow Jones (US)

23,346 – 26,150


As we note on many occasions, past performance is not a guarantee of or guide to future performance.

This demonstrates the positive aspects of volatility, but conversely of course funds can fall as well as rise.

The 'bull' market has recovered following the blip over the last quarter of 2018, and it is the opinion of many that the bull is not dead yet but is getting old. The word 'recession' has started to appear in the press / media, focused both globally and domestically, and we believe this is a real possibility. However, the prevailing view appears to be that any downturn is likely to be shallow and may not have a long-term effect on markets. Although not guaranteed, we do not believe that there is any specific need to change investment strategies at this stage.

To evidence this further, one indicator of a possible recession is the recent inversion of the US yield curve. All sounds a bit dull really, but our colleague Steve Williams, Director of Cormorant Capital Strategies, notes:

There are all kinds of things to be said about the US yield curve…, but the hot potato is an 'inversion' which saw the yield on the 3-month US treasury bond register a higher rate than that on the 10-year treasury; a reversal of the normal relationship which sees longer-term rates higher than shorter-term rates. Cue panic about an imminent recession.

I have to admit that I am not especially concerned about the 10y-3m inversion.While it persisted for 5 days (from Friday the week before to Thursday last week [22 March – 28 March]), it wasn't matched at the 10y-2y level –where the spread remains positive…–nor have we seen a similar inversion in the corporate bond market.Indeed, on a slightly different note, credit spreads look horribly tight to me still and that is not consistent with a significantly poor outlook as implied by bond market participants.

Finally, I'm not at all convinced that the next crisis is going to be much of a crisis in the 1997/98 or 2000/2001 or 2008 mould.In my view, a more common short-and-shallow recession is the most likely outcome – whenever that comes.If I'm right, and we encounter it holding anything like a reasonably defensive position, we can focus on the opportunities it presents rather than the associated dangers that others will obsess about.

Our overall view at the time of writing this article is to take stock of where you are with your investments, and most importantly to look at what you want them to achieve for you in both the shorter and longer term. We have moved into a new tax year, with new opportunities to use annual allowances, such as ISAs (£20,000 in 2019/2020) and the capital gains tax allowance (£12,000 in 2019/2020) and regular reviews of investments as financial and geopolitical positions change are always recommended.

No individual asset allocations, advice or recommendations are provided during the course of this article

We hope that this update is helpful. As you would understand, this provides no individual advice or guarantees of future performance but does give an insight into current economic conditions.

Keith Churchouse FPFS


CFP Chartered FCSI

Chartered Financial Planner

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