July 2019 Update

As one race ends in the UK, another one begins! The race within the Tory party is now over, and with Boris Johnson installed in Number 10 as Prime Minister, and his new team now selected, including a change of Chancellor at Number 11 to Sajid Javid MP, the race to the Brexit line of 31 October 2019 begins. At the time of writing, there are only around 98 days to resolve the position between the UK and the EU and time will be of the essence. Will there be a General Election in the UK before the year is out? Interesting political times ahead.

It has not just been all change in the UK. The European elections are now behind us, and many new faces have now taken their seats in the European Parliament. Again, at the time of writing, the tune to the UK from Brussels seems familiar in its stance and as before, our involvement in the future of the EU still remains unclear. However, one point of note is that at the European Central Bank has signalled monetary policy easing ahead to stimulate their slowing economy. For reference, UK GDP grew by 0.3% in the three months to May 2019 (Source: ONS).

We have continued to see significant negative press in recent weeks on the situation of a 'star' fund manager, and the suspension (which was due to be lifted and then got extended further) 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. This position has also been revealing, if not exposed, as this story continues to evolve, although more slowly than first envisaged, much to the frustration of some investors caught in the fund.

It continues to be noteworthy that since the start of the year (02 January to 26 July 2019), we've seen the following examples in investment markets:

Market Index

(02 January 2019 and 26 July 2019)

Increase over period (approximate)

FTSE100 (UK)

6,734 – 7,549


FTSE 250 (UK)

17,586 – 19,857


Dow Jones (US)

23,346 – 27,192


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

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899