Investment Committee

(Sovereign Wealth Partners)

Below is the latest colourful dashboard updated on 14 October 2016 by one of our research partners, Ineichen Research & Management (IR&M).  You may recall, IR&M is one of several research sources that guide our investment decision making.  They are Swiss based and provide a detailed global view of the many drivers of investment markets.  Like us, they believe that in the long run investment returns are driven by the fundamentals (the prices today will ultimately revert to what various things fundamentally ought to be worth) but in the short term may be driven more by sentiment and momentum (otherwise known as “technical” signals).

Observations

In the the IR&M dashboard, green is good, red is bad. Markets respond mostly to change, so the dashboard in isolation means little as it needs to be compared to the previous dashboard.  So changes from their previous published dashboard on 28 September 2016 are circled. Despite change in sentiment on bond yields and political risks etc., there are some very strong fundamental indicators ie. earnings improving, credit spreads improving, economic data, China, Japan, US etc.  – mostly incrementally good.

Interestingly, if we compare this latest Dashboard (Table 1) to one on 18 August 2016 (Table 2), you will see that the Dashboard has much more green, which suggests a considerable improvement in prospects in just two months for most global sectors.

Table 1

Table 2

Source: Ineichen Research & Management

What does this mean?
Inevitably charts can never tell us the whole story though.  This particular chart doesn’t reflect our strengthening Aussie dollar and the weaker British pound which creates some headwinds for Australian based investors.  Nor does it provide us with guidance on how expensive or cheap the various market are, or more importantly, should be.   With interest rates at record lows, but inching higher in countries like the USA, the question of a fair price for asset values remains as critical as ever.

A refresh on the columns
Looking at each of the factors, broadly from left to right, the first five columns set out IR&M’s interpretation of various recent economic data released in those counties and whether it is generally improving or deteriorating.  The EPS change column in the middle is a very important indicator of whether profits estimates for the next year are rising or falling.  The final three columns look at the momentum (or technicals) in the various global share markets.  We believe that momentum needs to be respected and the old saying ‘the trend is your friend’ is as true today as ever.   Investing against the current trend can be an expensive and lonely business, even for smart investors with very deep pockets.