35 Finance Summer Newsletter to Clients

Since our Spring newsletter in March, there has been a massive change.  The stockmarkets of the world are up, some quite dramatically, and the pound is up.  In amongst the chaos of the expenses scandal, there has been increasing talk of green shoots, and evidence that the UK is coming out of recession.  As always, there is a debate about the shape of the recession, whether it is a V or a W or even a square root, which means going up a bit and then going sideways.  Many of the signals of the start of a bull market are in place:  the price of investment grade corporate bonds is going up, the price of copper has gone up by nearly 75% since the start of the year, and the Coppock Indicator (devised by Edwin Coppock in 1945) has given a buy signal for many major stockmarkets.  Quantitative easing has not had much effect so far on the price of gilts, which are doing pretty much what you would expect them to do at this stage of the economic cycle, with a steepening yield curve indicating future economic growth and the return of some inflation. That said, it is likely that the volatility of the stockmarket will continue for some time.

How to respond to all of this?  In the longer term, I think we will need to look East more than we have done traditionally.  Whilst we worry about our own indebted economy, there are great opportunities to invest in some of the faster-growing emerging economies.  I also think that absolute return funds will prove to be good diversifiers for portfolios.  We have been recommending them for some time, and they have proved their worth through the downturn.  Their objective is typically to provide long-term equity returns at a third to a half of the volatility.  I think commodities provide a good diversifier and a hedge against inflation also, and I believe the commodities super-cycle will be with us for some time to come.  Keeping the costs of portfolios down is also important, and we are always looking for ways of doing this.  In particular, the increasing availability of low-cost tracker funds, known as exchange traded funds (ETFs), is making it possible to invest in a wide range of things, including commodities, at very low cost.  If you would like to know more about these, do have a look at our web-site.

How active should we be?  The traditional view is that including different asset classes provides the diversification required to cope with all market conditions, but unfortunately that did not work in 2008.  Anticipating major events in the economy is notoriously difficult, and over the long term there is evidence to indicate that you should not make major changes to the asset allocation in response to short-term events.  With advisory portfolios, our approach is that Lucy in Cambridge and Nicky, who recently joined us in the King’s Lynn office, send out regular valuations, encouraging you to arrange a meeting with us to review the portfolio.  With discretionary portfolio management, it is possible to be more active, and we would be pleased to provide more information on this approach if you would like it.

The budget brought in some unwelcome changes, though the increase in the subscription to ISAs to £10,200 was good.  The restrictions on pension contributions for high earners are complicated, and the increase in the top rate of tax for individuals and trusts make it particularly important for people affected to seek advice, so do please ask.  There is a profile of 35 Finance in Citywire’s New Model Adviser 20 April 2009 edition, which you can find on www.citywire.co.uk/adviser, and there is also a video interview there. 

Wishing you a very happy summer,

Jeremy Davis, Managing Director, June 2009.

"We have dealt with larger firms than Barr Ellison, but none have delivered the same level of consistent, high quality service."
Trevor Bailey, Head of Retail, Stable Trading Limited

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