Welcome

Spring 2018

Up until a month ago, equity investors could only see positives and had been relatively calm for three years. Suddenly the tide seems to have turned and markets got ahead of themselves thanks to very high levels of optimism. In my view the underlying prospects have not changed and the recent volatility is the inevitable effect of fear and greed.

We have seen excessive returns from stock markets over the last few years comfortably above long term returns over a twenty year period, which have averaged nearer 6%-7%. A period of excess returns is bound to revert to normality as we approach a higher interest rate environment.

In the last forty years we have seen the US technology sector balloon three times, but the underlying technological progress has continued. In the late 70s the likes of IBM excelled at the start of computerisation and then we had the internet boom of the 1990s, followed by the so-called “fourth industrial revolution” today which encompasses artificial intelligence, robotic technology and so many aspects of industry, healthcare and social media.

Markets today offer comparable characteristics to previous periods of enormous technological change. Few would doubt that Amazon is leading a retail revolution. It is here to stay but it is a question of what the valuation should be and that comes down to fear, greed and expectation of returns. This question gets harder when we consider that right across markets today we can see hundreds of smaller Amazons whose businesses are growing strongly and disrupting the long-established models.

The fourth industrial revolution is here to stay and will continue to change our lives. Markets look for winners and losers and over-react both on the upside and the downside. The recent history of Bitcoin was probably a warning sign and whether Bitcoin turns out to have real value or just be like the “tulip mania” of three hundred years ago, or the Poseidon debacle of the 1970s, only time will tell. Some investors, or speculators, are prepared to play these markets without any regulation.

This brings me on to the subject that is dominating our industry in 2018. We wrote to all our clients about the changes taking place in light of MiFID II (Markets in Financial Investment Directive II) last year. For the majority of our clients (75%) within a discretionary service, there will be little change. However, advisory clients will see considerably more change thanks to our increased obligation to send suitability reports for each and every piece of advice.

Over recent years we have seen clients move away from advisory services thanks, in part to the increased paperwork they have received but also the time it often can take to seek approval for a trade. I would like to take this opportunity to encourage all advisory clients to talk to their investment managers about the advantages a discretionary service can offer.

Finally, I would also encourage our clients to discuss investing with younger generations of their own families. Much has been made about the plight of millennials but for those able to save, starting early makes a big difference. A smaller investor today has few places to turn to receive sensible help; we set up Coleman Street Investments for exactly this reason - to help investors with smaller portfolios invest in a portfolio service at a reasonable cost. Your investment manager would be delighted to discuss this with you or your dependents.

James Edgedale
Chairman

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