Investment Committee

(Sovereign Wealth Partners)

Wouldn’t it be nice if we could present an elegant dashboard for our clients in our monthly newsfeed which told them at a glance how investment markets are going and what was likely to come?

It’s a noble aim and we’d certainly like to build such a dashboard.  Inevitably though, with investment markets the devil is in the detail and as we simplify and summarise we lose perspective on the actual drivers and anomalies of the individual buying and selling behaviour on worldwide exchanges which combine to make up various index levels and portfolio returns.

So as we continue to explore how best to keep you well informed on the financial markets, we thought we’d give you a tour around a colourful dashboard updated late last week (18 August 2016) by one of our research partners, Ineichen Research & Management (IR&M).  For us, IR&M is one of several research sources that guide our day to day 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 “technicals” in market jargon).

The IR&M dashboard below tries to pack the most important readings into a single chart to provide an indication of whether an investor pondering share investment into various global markets would have various factors are working for them or against them.  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 of 29 July are circled.   Counting the circles we see that good and bad news was fairly even in the last two weeks but if we compared to a few months back we would see that the table has “greened up” considerably with improving prospects for most global sectors.

Observations

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, the question of a fair price for asset values remains as pertinent as ever.

Source: Ineichen Research & Management 18 August 2016

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.