There is hope an early ‘Santa Rally’ for the markets and investments will continue as we roll on towards Christmas.
This has been covered in our recent ‘eshot’ to clients and interested parties (if you’d like to sign up, please do get in touch) but we thought it wouldn’t hurt to cover a little in this column to explain how we currently see the markets and opportunities for investments.
A ‘Santa Rally’ is fairly self-explanatory, as investments pick up with the approach of the festive season and it has so far indeed begun to come true, so investors should be happier than recent conditions have allowed and let’s trust the renewed optimism is carried into 2024!
Whilst one swallow does not a summer make, our message in early November (and our mailed client newsletter) noting average discounts on Investment Trusts were the biggest since the 2008 Financial Crisis have since dropped back to 11.3% (a decline of a third – meaning a good gain for investors).
In real terms, what does that mean? In a rising market, it means that regardless of any moves in the values of underlying assets or income received, the price of the average Investment Trust has now increased by just under 7%.
In other words, those who invested in those trusts when prices were low, are now seeing the benefits as the trusts increase in value. It is also worth pointing out the trusts still hold tangible assets, so even if they were wound up, there is value to be had in the sale too.
Our clients will have benefited from that as we are full of discount situations. When added to markets generally being more hopeful, it’s not been a bad recovery time, though value is still exceedingly compelling and prices far below where they ‘should be’.
It is certainly warming to have a few years’ investment returns in a month but we do understand that volatility (even on the upside this time) can unsettle investors.
Those able to take advantage would have subscribed more funds when things were at their ‘darkest’ and certainly not by selling up. As ever, we always counsel more patience for optimum results.
But for context, that newsletter was the most encouraging one we had written since the 2020 pandemic lows.
We are also informed that at the same time UK Pension Funds’ ownership of home shares hits a record low, overall overseas’ ownership of the British Stock market hits a record high (57.7%).
The old adage of ensuring you keep money in your home currency still rings true, to pay the home bills but clearly investing overseas has benefits (including risk mitigation) albeit it does increase risks (eg currency and political risks).
We have mentioned before the acute ‘concentration risk’ of the ‘Magnificent Seven’ – the biggest US stocks dominating not just the US but the world – counting for nigh a third of the value of the whole US market.
Such extreme situations don’t endure for ever and there will be many innocent investors who won’t realise how exposed they are to this extra and significant risk if or when it unravels on its move back to ‘normality’, whatever that represents.
Don’t forget currency risks either – with the US it used to be said that ‘you made on the market and lost on the currency’ – maybe the opposite might ring true from here – lose on the currency and lose on the market – most share funds don’t mitigate your currency risk.
