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Overview
We've been saying that we could see UK 10 year Gilts at 2% yields soon, but didn't think they would move from 3.06% to 2.32% in 3 weeks!
Also US Treasury's have gone to 2.09% which is 80 basis points tighter in yield in the same period. This is a 6.4% increase in price, which is huge.
By comparison, trading on equity desks currently must be an uncomfortable chair to sit in. However, for our MKC portfolios, this diversification shows the benefits of a multi asset class strategy that protects portfolios on the downside.
One thing is for sure, we did like equities before the fall (not crash as the tabloid press like to call it) and we like them even more now.
How do you Respond?
It's easy to lose sight of your views when this kind of thing happens and even we are cautious about the asset mix and fund choices. Overall, we believe there is a great deal of value in the market. It's not about trying to pick the bottom because you can never get that one right. It's about picking out key areas and pockets of value knowing, that in 5-10 years, you will have made more money by investing than you would sitting in cash. We think you can include residential property in that argument too.
For Income Generation
For those looking for income generating assets the need for yield is always there. If you look at some of the dividend yields in the UK market, it means that you should be viewing these falls as a huge buying opportunity. Vodafone, for example, yields 6.3%, beating inflation easily, but obviously there is risk to capital for this return. We believe that a process to identify the best fund managers should give us the greatest chance of achieving value in the markets whilst managing the levels of overall risk.
Conclusion
If you're in it for the short term then the risks are higher. However, with patience, intelligent investing, a strategic asset mix, regular reviews, together with buying more when the market falls and investing regularly (£ cost averaging) people with a medium to long term view should be rewarded.
Please do contact us if you have any questions regarding this article or would like to discuss your investments. We look forward to hearing from you soon - 020 7702 4488 kind regards, Barry Cunningham - Dip PFS Pensions and Investments - MKC Wealth barry@mkcwealth.co.uk Jon Hegarty - CeMAP, CeFA Pensions - MKC Wealth jonhegarty@mkcwealth.co.uk Adrian Kidd - Dip PFS Investments - MKC Wealth adriankidd@mkcwealth.co.uk Please note: It is important to remember that the value of investments and any income will fluctuate (this may be partly the result of exchange rate fluctuations) and investors may not get back the full amount invested. Current tax levels and reliefs may change, and past performance is not a guide to future returns. You should be aware that depending on individual circumstances, this may also affect investment returns. Where MKC Wealth or its advisors, have expressed views and opinions, these may change. Our EZine is produced with the aim of keeping our clients informed and up to date, but we do not believe it can replace tailored, face to face advice.
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