Markets started 2019 strongly after a very difficult final quarter of 2018, where a whole series of events convened, both politically and economically; you could have called it a ‘perfect storm’.
The trade tariff war between the United States and China, a slowdown in the Chinese economy and the resulting effect on emerging markets, a 40% fall in the oil price, rising US interest rates, after more than a decade of ultra-low rates, Brexit, the potential of a new UK government and rising nationalism in many countries. Not with standing this list, US and UK markets have since recovered half their losses, so the fall could be considered a healthy correction, rather than the start of something more sinister.
Importantly for investors, most leading companies have produced reasonable profit figures for 2018. Many of the industrial and technological trends will continue and whilst the US market was led up and down by the big technology stocks, it is worth remembering today’s leading companies and technology might be old hat in three years’ time and there could be a whole set of new ones. Medical technology, in my opinion, is a particularly interesting area after a decade of few new discoveries; but thanks to gene therapy we are entering a new era and with maturing populations in China and the Western world, spending should continue to rise at high rates.
In the United Kingdom, we have a sharp differential in valuation today in companies dependent on the UK economy compared to international companies. I believe the politics of this country should calm down in the second half of this year, and therefore it is possible that international money starts to come back into the UK which may lead to an uptrend in the fortunes of British assets, such as companies dependent on the UK economy and British commercial and residential property.
I do think it is important we don’t lose sight of what matters to us as investors amongst the Brexit debacle; namely solid fundamentals of individual companies. If we look back at British history and think of what our ancestors must have argued about in the past, Brexit might just pale into insignificance in relation to some of the historical votes, whether it be the Reform Act, Suffragette movement or even the Slavery Act. Values and beliefs will always change and this could prove to be a small point of time in our history and business will continue.
Markets aside, I am delighted to report that JM Finn continues to be in robust health, despite the slew of challenges that we and our clients face. Some clients will have received depreciation reports from us as a result of their portfolios falling by more than 10% since their last valuation, in the last quarter of last year. With a near 20% fall in markets it seemed inevitable that this new requirement to send notification to our clients within 24 hours was going to be tested – a particularly unwelcome Christmas present for some.
In other regulatory developments we will shortly be sending full cost disclosures to all clients about the total cost of investing, including total transparency of third party charges made by external unit trust managers. These reports show the charges that have always been included within the periodic statements that are sent, the difference with the new report is that indirect costs, or third party fund charges, those that are built into the price of funds, now have to be detailed explicitly and any other incidental charges that are listed on fee schedules are now itemised. Additionally, during the year we will require managed clients to sign a consent form to process your data, following the updated data protection rules.
Finally, I would like to remind clients of our wealth planning team who are on hand to help our clients in various aspects of your wealth management. If you would like any specific advice on retirement planning, pensions, inheritance tax or a general financial discussion please give your investment manager a ring to arrange a meeting.