Equities, Fixed Interest and Commodities:

While the rest of the market “observers” and “followers” concern themselves with the impossible task of interpreting the immediate pros and cons of the  Greek decision, we thought it appropriate to step back from some of the detail, avoid the current “noise” and look at the 3 major Asset Classes above with a longer term perspective:

To understand more about how we do things and the reports that we provide using our Tactical Asset Allocation models on a weekly basis see Learn More

At Sinergi we are NOT “Chartists”, looking at market movements and applying one of any number of scenarios to explain and by implication forecast the next key movement.

We accept there are some benefits to using Technical Analysis, however our primary concern is to represent our Market assessment in a way that is Systematic, shows a consistency of methodology and importantly one that has merit as a result of our extensive “back-testing” as proof of its continued effectiveness. The Charts below represent the application of our proprietary knowledge to three different asset classes overlayed on the longer term price information of :

  • Equities (using the FTSE 100 Index )
  • Fixed Interest (using the German 10 yr Bund)
  • Commodities (using Nymex Oil)

Our first objective is to demonstrate the detail in our approach before stepping back to consider the bigger picture and identifying the trends that you as an adviser can use to develop your client recommendations. In the following charts each coloured bar represents a summary of the weekly trading price information that we use as the basis for our reports, looking back to 2008 and the infamous volatility that lead to disasterous portfolio decisions through to our current markets as follows:

Each of the colours represent the recommendation that you might have made for your client.

RED-Underweight

BLUE-Overweight

BLACK-Benchmark

Fig 1 Equities (FTSE 100 Index)

Similar to the periods of underweight “Red” seen in 2008,  from the end of Q1 2012, we appear to be in a similar phase as recent short term relief rallies in stocks fails to shrug off the weight of the negative trend.

Fig 2 Fixed Interest (10 Year Eur German Bund)

On 7 June  we Tweeted a warning about important changes in the Yield landscape and of increasing Risk in Fixed Interest Markets and that the defensive “safe haven” status of this asset class had potentially exhausted itself. Remember 2008 when all asset classes correlated together and all fell.

Note the change from “Blue” (Overweight) to “Black” (Benchmark).

Since then German 10 yr Bunds have fallen from 146.89 to 141.69, which in the world of fixed interest is significant for the investor and could represents an unexpected and unwanted risk for a supposedly “safe” investment.

Fig 3 Commodities (Nymex Oil)

 

As you can see the dramatic collapse of OIL in 2008 and our “Underweight” stance is now being replicated in the similar underweight indicators that we have experienced recently. This phase has been in evidence for the past 5 to 9 weeks which has seen a fall from $110 a barrel to $84 (-23%)

Conclusion

So what does it all mean and how do our reports help? There will be no prizes for saying that there is a great deal of uncertainty across all asset classes at the moment and we would point to the fact that our reports have been indicating the need for increased cash holdings for a number of weeks.

Our recurring message at the moment for advisers is that you cannot afford to let the gains that are achieved, however briefly, evaporate as part of a “buy and hold” strategy. With RDR and all of the changes in technology your client will expect more from you or your competitor. Imagine how your Clients would feel knowing you have armed yourself with an independent tool that can advance your Market understanding? Consistently, every week.

We know that each client is unique and that you must consider risk appetite, tax planning and transaction costs among many other factors before making a recommendation or taking action on behalf of your client. However, in the coming months and years it will be the ability to preserve capital for your clients that will define you as a successful adviser.

Our proprietary approach provides a consistent and objective view of the markets that links the recommendations that you can make for your client to the strategy of your investment solution. It is vital that you use your awareness of shorter term trends to take steps for your client either as a recommendation for change or reviewing your investment manager strategy to make the most of the shorter periods of growth that will inevitably arise.

 

 

 

 

Keith Reid
Keith Reid
Keith’s training as an accountant and auditor has emphasized the importance of evidence in all good decision making process. The ability to monitor management processes effectively is a key to making the most of business opportunities. Both Keith and Gerry believe that this priority for capital preservation is the common principle that sets the framework for any sound investment strategy or business model.