It has been a big week for financial markets. Volatility leapt up ahead of the interest rate decision and the oil price has continued to plummet.
However, now that the Fed has raised interest rates by 25 basis points from their long term lows, markets have taken it positively…so far.
Although most markets were up in the 24 hours following the decision some of those gains have already started to slip away and the much vaunted Santa rally seems unlikely to materialise.
We hope that doesn’t take a shine away from your Christmas celebrations but if it does here are some of our best stories of the week to cheer you up! Have a great weekend all the FE Trustnet team.
It’s hard to know what to buy in 2016, but don’t listen to the bears, warns Dampier
First up FE Trustnet’s senior reporter Daniel Lanyon spoke with head of research at Hargreaves Lansdown Mark Dampier on his thoughts for the year ahead.
Dampier says a lack of clarity in financial markets is making asset allocation a supremely difficult task and while humble in stating that he has little insight of the direction they are heading he says he won’t be listening to any of the ‘perma-bears’ anytime soon.
He said: “Asset allocation is remarkably hard to do at any time but it is near impossible to do at the moment. It is so hard difficult for both private and professional investors to know what to do. Cash is still trash and people don’t what to hold much [cash] but it is very difficult to know what to buy.”
He thinks the bears have got it wrong for several years causing their cautious stance to hurt returns for their investors and so their judgment should be called into question even if they will inevitably be proved right at some point in the future.
Is there any point holding the likes of Standard Life GARS in your long-term portfolio?
Next Lanyon dug down into FE Trustnet’s ample data supplies to take a look at how holding an absolute return has helped a typical portfolio.
For simplicity he looked at the £26.4bn Standard Life Investments Global Absolute Return Strategies fund, also known as GARS, given its huge popularity among investors.
Suffice to say, portfolios with different weightings to GARS performed differently in different market conditions.
By building six portfolios with differing amounts of bonds, equities and GARS the long term returns were effected as was volatility.
Source: FE Analytics
Click through to read why and how this effected risk-adjusted returns.
It’s “never been more important” to diversify away from UK income funds, says Boyd-Bowman
In this article, Neptune’s George Boyd-Bowman told news editor Alex Paget why investors need to seriously consider diversifying away from UK equity income funds.
Now, the manager does run a global income fund so many might not be surprised by his comments, but given the stretched valuations in the UK’s high quality stocks and yet the significant risk facing the likes of mining and oil stocks (which are widely held by UK managers) he only holds 10 per cent in FTSE-listed stocks and avoids the most popular companies.
“I have to be careful here as you would expect a global equity income manager to tell you that you need to diversify out of your UK income funds, but actually, there has never been a more important time to really consider this,” Boyd-Bowman (pictured) said.
“That is because of this idea of dividend sustainability. In the UK, just 15 stocks account for two thirds of all dividends. In fact, just two stocks account for a quarter of all dividends paid and they are BP and Shell.”
“Now, that’s all fine in a period of high and rising oil prices but in a period like today of low and falling oil prices, that starts to question dividend sustainability. There has always been the need to diversify your asset allocation and income stream away from the UK, but it is so much more pressing today.”
Instead, the manager has a hefty weighting to Japanese equities. While these aren’t necessarily an income investors best hunting ground, he says they will be over the coming decade and wants to benefit from that trend.
Boyd-Bowman added: “Japan is the developed market with the best prospects for the strongest dividend growth in the world over the next 10 years.
Where not to invest in 2016
Following on from an FE Trustnet end-of-year tradition, reporter Lauren Mason asked a panel of our regular commentators which areas of the market they’ll be avoiding as we head into the New Year.
Unsurprisingly fixed income was bought up a few times, with Whitechurch Security’s Ben Willis opting for bonds as a no-go area for the second year running.
“Two key factors that affect bonds are interest rates and inflation – at present we have near zero in both and this has maintained the bull-run in bonds which has been with us for over seven years,” he explained.
“However, I’m not saying that rate rises by the Fed will cause a bond sell-off, but it will be the potential trigger for yields to widen in the coming years if ‘normalisation’ in the US, and UK, continues.”
Other areas that were chosen by the experts were more left field and included the ever-popular house-building and consumer-dependent areas of the market.
To find out why a swing in sentiment could be on the horizon in 2016, read the full article here.