Looking at a different theme this week, we are great advocates of a systematic approach to market analysis and the importance of differentiating between the use of evidence and making assumptions in decision processes across financial services. However, we are not slaves to the man versus machine argument and distinguish ourselves from “black box” technology.
We will never suggest that inspiration is not the driver of great results however we are always clear that great individual decisions are dragged down by many more poor decisions that might be cut out by using clearly defined evidence, whether this is for general asset allocations or detailed transactions.
We are now providing market analysis of varying complexity for different market professionals ranging from financial advisers and wealth managers to more active decision makers such as brokers or investment managers.
Importantly, we are working on distribution solutions that continue to bring more of our analysis to the reach of a wider base of users and we see what is regarded as the lower end of the market as a niche in need of services.
Blending Man versus Machine
This article man versus machine gives a very strong indication that that a body of investors (71%) are already prepared to use the internet although a majority (48%) still want the assurance of a personal relationship and many(36%) will pay for the service if the fees are reasonable.
Our basic reports are intended to provide the broadest views of price trends in markets and sectors suited to advisers and wealth managers considering the very broad matters of asset allocation on behalf of their clients. It is also significant that the ability to identify and participate in the best performing markets and industry sectors is more likely to contribute to portfolio growth than an outright stock picking strategy.
So with these factors in mind how have we fared in terms of matching our analysis with general price trends? Also, where we do we see the importance of our analysis for the general user.
Consider Our Natural Bias to the UK
As we approach year end there will be more than a slight sigh of relief for many UK investors and their advisers that the FTSE 100 is in sight of the psychological 6,000 with growth circa 7% for the year as many IFA’s prepare for year-end reviews with their clients, but is that the whole story?
The table below shows how the other Equity Markets have performed in comparison to the FTSE 100 this year. If for the moment we ignore currency risk clearly this represents an opportunity lost.
At the risk of a backward looking bias the temptation for many advisers will be to make changes as they see results and look for a more global strategy. It is clear that a growing number of market professionals realise the value in being able to compare performance but do so through simple measures, such as past performance.
As a result advisers are increasingly outsourcing to model portfolios and DFMs and the adviser taking the path of least resistance will rely on their investment manager to tell them how they compare. The fact that the DFM/MP manager is both the prosecutor and the judge does not dawn on the majority of advisers.
The question is: Are these the right choices to benefit their Clients? Do you risk leaving the UK for growth and will it continue or is past performance no indicator of future performance? Will you sit on the fence and let the long term sort itself out without questioning your investment manager?
Sinergi proprietary models offer subscribers the ability to make more timely if not smarter choices for their Clients. Looking past the noise of short term price movements we are able to focus on the more persistent trends in markets and industry sectors. Importantly, we provide the information on a weekly basis to provide you with the best opportunity to consider your options.
This does not mean that you should begin to “churn” a client portfolio but it does place you in a position to take informed action on their behalf as and when it is appropriate. Possibly just as important is the fact that we provide evidence for your decisions.
Outlined below are a few extracts from our Sinergi Dashboards showings how the other Equity Markets and equally importantly industry sectors continue to perform at the moment.
2.0 Equity Sector Analysis-Week 49
Fig 3 Below shows which Sectors have performed the best this year
Of course it’s easy to tell you what’s happened after the fact. However, it is more relevant to be able to link your asset allocation decisions towards the best performing markets and sectors as they grow and away from those that don’t.
Would you have considered in this technology driven year that banks would out-perform telecoms given the relative media coverage?
Weekly Reports for Quarterly Decisions
We make this analysis available in the knowledge that weekly trends and particularly the stronger ones don’t change dynamically overnight. As a result our weekly pictures continue to build up in to a more convincing quarterly and semi-annual picture giving you more assurance for your recommendations.
For those that are more involved in day to day decision making we are able to drill down to individual securities and become progressively more accurate in our analysis.
Fig. 4 Individual Equity Analysis
Armed with this insight we are able to focus on removing poor decisions in favour of good decisions. This is not because we know how a price will continue to trend but because we have improved our chances by letting the evidence place us in the right spot at the right time.
We are continuing with our efforts to make this type of information that was previously out of reach more readily available for our subscribers.
All it Takes is a Nudge in the Right Direction
It is important to remember that we do not aim to find the top or bottom of a particular market but the trend in the middle where we have greater confidence that any decision that we make has a good chance of continuing to move on the same path.
This does not necessarily mean that there will not be points where we lose some value but over the appropriate time scale we would hope to see an element of improved performance. So the obvious question is: are we able to achieve what we set out to do?
Well we have been producing our standard Heatmap reports for 10 months and circulating them to subscribers on a weekly basis. This is beginning to provide a database (admittedly not large) of results that we can collate to form a bigger picture.
In the table below we have simply segregated the positive weeks as we have identified them from the negative weeks. A snapshot of selected weeks and industry sectors are summarised in the following table.
.We believe that they are quite compelling. We are not advocating that you begin to trade our trend analysis on a weekly basis. However, we do think that it begins to become clear that keeping an eye on each respective trend could position your client portfolio to avoid some of the negative and capture some of the positive trends.
Simply comparing the sector allocation of your chosen fund manager and keeping your clients’ asset allocation in mind at the same time could have a significant effect for their long term investment growth.