Carrington Investment Approach

2016 has been a demanding year for markets and as I write there remains quite a lot of short term caution. Retail Investors in the UK have been redeeming heavily in the first half of 2016. The challenge for them will be when to put the money back to work as interest rates are set to be low for a very long time now.

This year has definitely been one of two halves.

The start of the year was very difficult as the markets globally were concerned about a number of macroeconomic factors. The markets were unclear about whether the US economy would actually be able to handle interest rate increases, as indicated by the US Federal Reserves. There were ongoing concerns about China in terms of its economic slowdown and how the Renminbi could be managed in the face of several US rate increases. Most prominent of all, the continued fall in the oil price was seen as bad news for the global economy.

The headlines were grabbed by an announcement from the Royal Bank of Scotland which said to clients “sell everything, markets are set for a new crash and oil could plunge to $10 a barrel!”

We mention this not because it has proved to be totally incorrect, but it reinforces our belief that we need to make our own decisions based on our own analysis. Sometimes, short term news flows set up extremes in sentiment and so we try to avoid being influenced. When we are wrong, at least we will know why and can make the changes needed.

As the year advanced the market became increasingly concerned about the possibility of a BREXIT vote for leave, fuelled by plenty of high profile forecasts of impending disaster. There was a school of thought who felt that maybe the right course of action was to sell everything and look to buy again after the result was known.

For about a week following the unexpected result, that course of action would have looked to have had some merit. However, markets are now higher than before the vote. Sometimes, just waiting and having a slightly longer viewpoint is the right thing to do.

We now feel well placed to make some changes and we will send you more detailed notes for your particular portfolio shortly. These will be around a view that we think there may now be some merit in looking at emerging markets again and reinitiating a position in the USA. We appreciate there may be some nervousness around the elections there. As we have recently experienced, there can be a surprise result but we expect to see Hilary Clinton as the next US President. Japan has been disappointing, which led to us sell our holdings earlier this year, however, we may look to re-engage the region due to the improving outlook there.

We feel that although there are no major changes needed, we will use this period to reposition away from holdings that we consider the outlook has got worse for and add back to where the opportunities look stronger.

There is bound to be an increase in volatility again, but we do think that when we get past the US elections, markets will remain positive in the last quarter.

We are going into the last quarter of the year feeling the markets will present good opportunities, and we take some comfort from knowing there is still a significant sum of money outside of the markets which is looking to re-enter and which will provide some longer term support. There are of course always risks to the markets, but as always there will be rewards as well. 2016 may well still prove to be one where returns are quite good.

If you have any questions please do not hesitate to be in touch.

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