April 2013 Investment Review

Happy New Tax Year

The graph above shows the progress the FTSE 100 Index has made over the last six months. I’m sure all clients will have seen their investments progress well over this period. We changed our model portfolios twice over the period. We reduced cash holdings and increased equity holdings in early November and we reduced equity holdings and increased the amount of cash we hold in mid March.

How have you done?

As discretionary fund managers, over the last 6 months we have beaten our Cautious and Moderate benchmarks and are narrowly behind our Aggressive benchmark. However it is hard to give a true like for like evaluation as all our portfolios always hold at least 5% in cash which acts as a drag against a benchmark which holds 100% funds. Also because we changed the portfolios twice within the period. buying low and selling high, this cannot be reflected in benchmarks which assume you finish the period with the same funds you started with. We have obviously retained more profit at the end of the period since markets fell.

How has the FTSE 100 done?

It is now hard to believe the FTSE 100 didn’t reach 6000 points till January, so by mid March at a heady 6500 points, we decided it was time to take some profit and wait a while for the dust to settle. It’s early days but I think it will be a while before we see sustained levels above 6500 points again. But we will keep an eye on things and move again as necessary.

What are you following closely?

I’m no fan of banking shares, and I avoid investing in them whenever I can, but they tend to be a good lead indicator of how the rest of the market is likely to perform next. Since the middle of February they have been falling. It is often thought that for the FTSE to be healthy, then banking shares need to be performing strongly as well. Obviously much of the fall out in banking shares has been because Angela Merkel needs to win her next election, and sacrificing the savings of a few British ex-pats and some Russian money-launderers in Cyprus wins votes. Because the Germans aren’t faced with footing the whole bail-out bill instead. There is now a question that needs answering though. Across the whole of Europe when can any depositors funds can be taken away above €100,000? Because in the UK we share the same rule. No wonder we don’t want Europe making all our decisions.

So I’m watching for a recovery in banking shares and I’m keeping a close eye on investor protection legislation. I would suggest that a UK citizen does not hold more than €100,000 in any foreign bank currently and zero if they have a choice. British accounts in Cyprus could be frozen for months or even years like those in Iceland.

Is anything worrying you currently?

US growth is slowing and so it is starting to look like the fourth consecutive deja vu year of strong growth followed by a poor summer. Along with N. Korea’s muscle flexing and a potential future pandemic brewing in China (can we believe their official numbers when they have lots to lose if bird flu does appear to get out of hand) it still feels right to be cash heavy with one foot on the platform and one foot on the train.

When is the next update?

These updates are quarterly so we will write again in early July.