In December 2016 I reviewed the year and its events as they had unfolded and now find it interesting to see the impact nine months further down the line.
Immediately after BREXIT we saw US investors dramatically reduce exposure to European equities. For most Americans ‘herd mentality’ kicked in and now Americans are hugely underweight in their investment allocations to the rest of the world and are now in the process of re-allocating back to global investments.
Those investors who avoided ‘emotional trading’ pre-Brexit saw a buying opportunity in the UK and European stock markets. That courage has now paid off as we see strong investment returns from the UK and Europe.
We now have a weak US Dollar with a rebound in the short term highly unlikely. The drivers of the Dollar’s recent underperformance appear to be:
the market’s apparent belief the US Federal Reserve will not raise interest rates in December. The market continues to refuse to price additional rate hikes from the Fed, a phenomenon that can be termed zombification.
concerns about adverse weather’s impact on the US economy.
more balanced global growth, which reduces the US economy’s growth advantage, and
a shift towards monetary tightening in some developed market economies which, alongside declining US bond yields, has eroded the USD’s yield advantage.
Meanwhile, the GBP/USD exchange rate is up to 1.32, its highest level in five weeks. The Euro has also achieved fresh highs against the Dollar and this is set to continue.
Europe’s slow-but-steady recovery continued in the second quarter of 2017, with a number of economic indicators showing strong improvement. Many investors, wary about the inconsistency of Europe’s performance over the past several years, appeared convinced that current economic growth has become sustainable. This sentiment was supported by European Central Bank (ECB) policy, which signalled confidence.
In addition to solid economic growth, European companies have been reporting strong earnings after several years of stagnation. In the fourth quarter of 2016, the profits of European companies rose 11% year-on-year, a two-year high, compared to 5% growth from US companies. This trend has continued as positive earnings from European companies for the last quarter were the highest in seven years.
So should you be ‘Risk on or Risk off’?
We are experiencing a slow-but-steady expansion in developed markets and an acceleration of growth in some emerging markets. In a low-return world, you need to look for sources of return by making tactical equity plays that look for opportunities across multiple asset classes and different geographical regions in order to take advantage of current market conditions.
It is crucial that your portfolio (whether it’s a pension or investment) is actively managed and well diversified. Far too many times we come across investors with existing portfolios that are not sufficiently diversified or aligned to a clients’ objectives both short term and long term and as result they are disappointed with the investment returns they are achieving. These lower returns are often as a result of inaction and a lack of dynamic investment management on the part of their existing advisers.
The key is to review your portfolio regularly and maintain liquidity to ensure tactical moves can be made as the geopolitical landscape changes.
Always consider your investments as a whole and make sure your adviser is rebalancing your portfolio as appropriate in order to take advantage of the current economic climate. Low risk usually leads to lower long term returns, interest rates on savings accounts have been at an all-time low for some years and this trend is likely to continue to worsen. Of course, everyone should have some cash for emergencies and unexpected events, but for those with a longer term investment outlook (5 years or more) this should be supplemented with investments in other asset classes and geographical spread that offer better potential for real capital growth and/or income.
Speed Financial Solutions are a highly qualified financial services provider on the Costa del Sol looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, our service is tailored to your needs. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to our clients’ advantage. Our relationship with clients is built on trust and mutual respect. We are accessible and approachable, and ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a Fellow of the Personal Finance Society (PFS) which is the professional body for the financial planning community. The PFS is part of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels.
Along with a Fellowship, Andrea is a CII Chartered Financial Planner specialising in Taxation and Trusts.
Please take a look at our website – www.speedfinancialsolutions.com for further information and contact us (Tel 951 315 271 or 951 318 529) – we are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
13 September 2017