MARKET UPDATE

John Butters, Spring 2019




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MARKET UPDATE, SPRING 2019

John Butters, Chief Investment Officer

After the market falls of late December I wrote that it would be in-character if the erratic “Mr Market” had despaired too soon – in other words, that markets had become too negative about the future. That was not a prediction – we do not make those – but rather an instance of the wry scepticism with which all the market’s moods should be regarded. In the event, the dark skies over the market in late December were not the heralds of perpetual winter but merely the tail end of an ordinary storm. Markets have since risen strongly, and the global index has exceeded its previous all-time high.


It is just over thirteen years since I joined the investment management industry and began to learn the gospel of long-term stock market investing. Hedge funds were in fashion back then, and their managers regarded as geniuses, but our portfolios were still mostly invested in plain old shares. Support for that approach came from the famous investor Warren Buffett, who in 2007 bet a hedge-fund expert $1 million that a US stock-market tracker fund would beat any hedge funds of his choosing over the coming ten years. When the financial crisis struck in 2008, it seemed possible that Mr Buffett might lose. But like all global market crises so far, the crisis of 2008 was temporary. The decline in hedge-fund returns was not. The expert’s five funds returned 36% in the ten years to 2017. The tracker fund returned 126%. Mr Buffett donated his $1 million to a leadership programme for girls in his home town.

We do not recommend hedge funds or a single tracker fund, but portfolios that mix equities and bonds to get an acceptable amount of risk. The reason is simple: if you have your risk right, you can afford to be fearless when a storm hits. Long-term returns will probably not be as good as a pure stock-market investment (which could fall by half). Nonetheless, in the years since I joined the investment world the average “steady growth” portfolio run by the average investment manager has returned 91%. That is because they mostly share the same basic strategy: get in the markets, and don’t get out.

All data sourced from FE Analytics.

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