Don’t let 10% letters blow you off course

It was a brutal year filled with ups and a whole lot of downs. Multi-asset portfolio funds manager David Coombs explains how the team is facing 2019.

Puddle reflection holding an umbrella

Many of us will feel a bit fatigued after 2018. Most asset classes fell to varying degrees and we saw the painful return of volatility. If you are a sterling investor, and most reading this are, then you had the added uncertainty of a currency buffeted by world opinion on the likely outcome of Brexit.

We were discussing this in the office last week. I made the point that actually 2018 was pretty unremarkable compared with the period from March 2000 until the end of 2002. Those three years were the most difficult of my career. Equity markets ground lower day after day, week after week and month after month. Towards the end I was seriously wondering if I wanted to continue in investments.

In those days I was running segregated mandates rather than funds, which meant much more direct client contact. I was constantly trying to reassure them and, at times, had to react to some quite cutting observations about my abilities and parentage! Losing money is a visceral thing, it really is a gut pain. And the person losing that money on your behalf (while charging a fee no less) tends to be a handy focal point for that anxiety and anger.

In 2003 I moved from private clients and charities to managing funds. I wanted to set strategy rather than rely on others. I wanted to work on designed funds that focused on absolute risk rather than relative, as I felt this was more aligned to investors’ reactions to losses. The Rathbone Multi-Asset Portfolio Funds are the latest versions of those strategies.

I have never forgotten my earlier experiences, however. All the funds I am responsible for lost money last year. Total Return was down 1.7%, Strategic Growth -4.0%, Strat Income -3.6% and Enhanced Growth –6.4%. I hope my investors think that these results, in the context of the gruelling market background, are in line with their expectations. I hope they haven’t caused undue stress (certainly that is the feedback we have received so far); nevertheless I appreciate the worry losses bring.

I don’t know if markets will be positive in 2019 or whether we will see a repeat of last year. As I write this, US President Donald Trump is still tweeting and Brexit is still a mess. However, there was a significant de-rating in equity markets last year, so as long as the world avoids recession (and I believe it will) I remain optimistic for the prospects of businesses that continue to evolve and improve themselves amid an ever faster pace of technological progress.

To this end we have been adding to our holdings in companies with strong franchises and reliable earnings growth. This doesn’t mean buying ‘growth’ en bloc . As mentioned before, we believe in Alphabet, but not Apple; Adobe, not Facebook.

We are using the greater volatility to purchase companies we think are promising on a five-year view. We try to avoid the emotion of short-term price movements and instead use them to our advantage: some days we find the companies we liked yesterday selling for 10% less. If we are wrong and the global economy does enter recession, we believe our safe havens – gold, yen, Swiss francs, Aussie government bonds, etc – will mitigate the worst losses again, just as they did in 2018.

It’s always hard to increase risk when you are surrounded by uncertainty and negative sentiment. But often it is the right thing to do, as prices are lower. So we are. We did not lose too much last year, so we don’t have to take excessive risk to claw back returns. Rather we are increasing risk a little to maximise the potential opportunities out there.

 

 

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 4 (2 votes)

Subscribe to the In the KNOW blog email

Archive