What has happened this quarter
This quarter the FTSE100 has sunk again. The index finishing 122 points or just less than 2% lower. It began the period at 6,528 points and fell to end the quarter at 6,406 points. There were two days where the FTSE100 touched 6,200 within the period. As you will remember from reading my July 2014 investment review, I was far from confident of global markets remaining at such a high level and therefore was holding a high quantity of cash, awaiting a suitable time to re-invest when the market turned lower. That time came this quarter and purchases have been made.
One of those purchases was a FTSE100 index tracker. The index has hit highs of 6850 points 6 times in the last 12 months. After the mid October fall, it looked like a bargain. Over the full year the index was negative 4.6%! This is undoubtedly due to the high weighting in the index of Oil Shares like Shell & BP. I talked about this in more detail in this previous blog. Now I know that both Shell & BP, like most oil companies, actually produce more gas than oil these days. Sure as eggs are eggs the oil companies will survive and thrive again. We will have to wait a while to see if I was correct to buy at these market levels.
How has a typical Moderate client faired over the year?
The screen shot below is an actual, but anonymous client account.
Since nothing was added or withdrawn from this account over the year, it can be seen that a moderate client ended the year 5.9% higher after all fees had been paid. Far from our strongest year, but taking into account the FTSE100 losing 4.6% it doesn’t look too bad. With inflation down to only 1% and a negligible return available from bank deposits and National Savings, a Real Return (return above inflation) of nearly 5% covers clients goals and aspirations.
Over three years the total growth has been 29.7% which equates to 9.1% compound.
Anything to mention?
Our chosen UK investment, the Vanguard UK Equity Income Index, fell by only 1.94%. This is because we decided to reduce our UK holdings by 1/3rd back in March. We have also actually made 0.43% in the FTSE100 tracker fund, but that is because we have bought it cheaply as mentioned above. Both these decisions are looking good so far. Europe continues to be a drag on performance but I have high hopes for the future. Even Gold made 3.72% this year for us, as again we bought cheaply and topped up our holdings.
So what next for markets?
By most measures the US market looks expensive and will probably drop a little in the short term. But with so much worry in the outside world for the typical, never go abroad American, who can blame him for not investing globally. Hence the US is over-bought. After all the US share market is still the biggest in the world. But what is worrying is the amount of money US investors borrow to re-invest into the markets. Seriously they do this! This is at an all time high level. If markets fall they could drop suddenly as these borrowers will need to offload.
My second worry is the amount of debt Energy Exploration companies have in the US. It seems that if you are in possession of a land lease and a drill bit and you can steam up a mirror, then you can borrow huge amounts cheaply. Trouble is, with oil priced around $50 a barrel, the companies now can’t afford to drill and so can’t pay the interest on these loans. Its a bit reminiscent of the housing loan crash of 2008. We are watching closely.
Globally most markets remain relatively attractively priced.
Oh. Santa failed to deliver again. I’m beginning to think he doesn’t exist. It’s a shame his sleigh is powered by reindeer and not petrol. He could have saved a fortune.
When is the next update?
These updates are quarterly so we will write again in early April 2015.