We have just sent out the rebalance packs, and it always seems hardest when investment returns are challenged. This month I wanted to focus on how investing can be like being on a rollercoaster ride, and why it sometimes feels uncomfortable in the short term but focusing on the bigger picture often helps.
“Investing is Like Riding a Rollercoaster, and it Shouldn’t Be Any Other Way” Anthony Bucci
On a rollercoaster ride there is often a slow ride up, then a sudden drop and woosh back up. Sometimes the drop down goes on for longer and we sit there wondering when we will hit the bottom. We know it will come we just don’t know how long till we reach the bottom.
Apparently, the average rollercoaster lasts 2 minutes, but it feels like years! The twists and turns mean that we go through many different emotions in that time.
In June 2011 I joined LWM Consultants to help manage the portfolios. We went on holiday in August just as the markets tumbled due to fears over the European sovereign debt crisis. My first period co-manging the portfolios saw negative returns!
2012, 2013, and 2014 were positive. Then in 2015 and 2016 there were further stock market sell-offs. In 2015 the pull-back was due to a mix of factors including a slowdown in growth in China, falling oil prices and Greek debt defaults. Then just when we breathed, for the first six weeks of 2016, we saw concerns over rising bond yields and the Brexit vote drive markets down.
2016 (after the recovery) and 2017 seemed a good time for investments, and then in the last quarter of 2018 markets tumbled due to mix of factors including Trump’s trade war, slowdown in global economic growth and fears that the US Federal Reserve were raising rates too quickly.
In 2019 and the beginning of 2020 markets were again positive. However, 2020 was all about the spread of COVID and the eventual shut down across the global economy which saw markets fall significantly. However, the bounce back was quick delivering a positive 2020. 2021 was tough but positive.
Then we have 2022; inflation, slowdown in China, rising rates, Ukraine / Russia, oil prices, commodity shortages, another China lockdown and the list could go on.
What I wanted to demonstrate was that in the ten plus years I have been investing money the journey day to day / month to month / year to year has not been smooth, but we have delivered solid returns. We have also seen the portfolios oscillate, between cautious and adventurous investments.
It is therefore very easy to forget that investing is a long-term “game”.
The tables below show the portfolios from 1 June 2011 – 31 March 2022:
Moderately Adventurous Portfolio
Balanced Positive Impact Portfolio (1 August 2014 – 31 March 2022)
I have included the Positive Impact Portfolio, but it doesn’t have the same track record. If we look at the four mainstream portfolios and if we assume 2022 is negative, then we have had three negative, and nine positive periods. We have also delivered annualised returns between 6.57% and 8.21%. Even with pullbacks in 2015, 2016 and 2020 the portfolios delivered positively, reflecting that we don’t know when the snapback will come.
The most enjoyable time to manage money is when we are going up slowly (it is not always exciting), but we know at any point there will be twists and turns and we just don’t know when these will come. What we have seen over history is that markets do recover.
We also know that investors tend to avoid markets at the point of greatest fear. We are close if not in that period now. Often at this point there are many opportunities. We know that 2020 was an extreme point but from the lows of March 2020 to the end of the year the portfolios returned between 41.57% and 64.63%.
In 2016, from the lows in February to the end of the year, the returns were between 22.06% and 36.11%.
So, what does this tell us. We are expecting 2022 to be a negative year and that doesn’t sit comfortably with us. However, we are aware that if history repeats, we could see positive returns in 2023.
It is also healthy for markets to have a clear out even if it feels uncomfortable. The message is very much the same as we have said in previous updates.
We have a process and we follow it. It is very easy at times like this to lose sight of that and chase returns. If we do that it will not end well. We will challenge our thought process but if we have stuck to the process, and unless something has fundamentally shifted, we know at times like this we are on the long drag down on the rollercoaster and we must just wait for the bottom to come. There will be false starts and twists and turns, but it will come!
One lesson I was taught when I started investing was that investors don’t need to follow every twist and turn. The best approach is to look from point a to point b and ignore what happens in the middle!
Tracking the market
We know the S&P suffered its worst April in 52 years, and worst month since March 2020. Bitcoin continued to fall, and this is now down -20.91% to the end of April 2022. Crude Oil is up +37.61%, Gold up +6.10% and the FTSE 100 +0.52%.
|1 January 2022||30 April 2022||Increase|
Sources of data: CNBC, Yahoo Finance & Reuters
What is in, and what is out?
Seven of the top ten funds over 12 months are commodity based, and two are Middle East focused. The top three are unchanged – Oil and Gas Exploration and Production +72.5%, iShares S&P 500 Energy Sector +70.50% and GS North America Energy and Energy Infrastructure Equity Portfolio +64.50%.
The bottom ten is a mix of internet-based strategies, emerging markets, and US. The bottom three are HAN Global Online Retail UCITS ETF -64.1%, BlackRock GF Emerging Europe Fund -57.0% and Liontrust Russia Fund -54.3%.
The data from the Investment Association is up to the end of March. Europe ex UK had outflows of -£448 m, Specialist equities were down -£230 million, Technology and Technology Innovation down -£178 million, UK All Companies down -£325 million, UK Equity Income down -£211 million, High Yield down -£172 million, Strategic Bond down -£528 million, Mixed Bond down -£512 million, UK Gilts down -£257 million, Short Term Money Market -£217 million and Targeted Absolute Return down -£302 million!
There are no clear clues as to where the money is going but some of the winners for new money included – Global Equity Income +£475 million, Government Bond +£237 million, Infrastructure +£173 million and Volatility Managed +£475 million.
Net sales were negative in March at -£3,444 million. Responsible investments were positive and up from the figures in February.
In summary, in terms of performance we are continuing to see oil profit but at the bottom of the table it is mixed. The vast amount of money coming out really demonstrates the uncertainty that investors are facing in the hunt to find safe havens.
Sources of data: TrustNet, Investment Association
Talking shop with fund managers
We have completed nearly 60 meetings this year. Additionally, we have had various economic updates. Below we share some thoughts from these meetings. Some may contradict as these are views from different managers:
Green Investing – EdenTree / Amati / FT Climate Capital Council
- The green revolution is a multidecade opportunity
- Challenges around global warming, waste generation and access to clean water
- Changes will impact the way we live, we consume and how companies operate
- 1 in 4 garments that are purchased are never worn and only 2% recycled
- There has been a 27% growth in plant-based foods since 2020
- Plastic can only be recycled between 2 and 7 times so work is being done on alternatives to plastic
- The younger generation are looking more at companies and what they do, being a big brand is not necessarily seen as positive
- Decarbonisation needs more metals, and this is a multi-decade opportunity. Green metals like nicol are likely to demand premium pricing in the future
- Many good miners are trying to mitigate their carbon footprint, examples would be electric fleets, hydrogen fuel cells and solar power
Russia / Ukraine – JPMorgan / Premier Miton
- 15% of natural gas production comes from Russia
- 40% of Europe’s gas production comes from Russia
- Other commodities include wheat, fertilisers, and oil
- The war is bad for many parts of the world who rely on commodities from Russia / Ukraine
- Steel shortages and prices are a worry especially across industries that rely on steel which includes the green energy space
- US more insulated from these shortages but likely to impact European and Emerging Markets
General disclaimer: The data has been sourced from external sources and although we have looked to ensure this is as accurate as possible, we are not responsible for data they supply. The view on markets is written in a personal capacity and reflects the view of the author, it does not necessarily reflect the views of LWM Consultants. Equally the views under talking shop are those of individual fund managers. Individuals wishing to buy any product or service because of this blog must seek advice or carry out their own research before making any decision. The author will not be held liable for decisions made because of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.