Geopolitical noise and concerns over the end of the market cycle are pulling down the mood of investors and could see them miss out on profitable opportunities, according to Credo Wealth’s Deon Gouws.
Gouws, who is chief investment officer at Credo Wealth, said that investors are rewarded for being optimistic in the long-term and should reject a bearish investment approach for 2019.
He said: “If you follow the news with Donald Trump and the trade wars with China. With all the milkshakes flying around, I think it’s very easy to get down with the doom and gloom.
“But here we prefer to see that the glass is half full. The reason for that, is that over time markets reward you for being optimistic. That's the nature of capitalism, that's the nature of animal spirits.”
This positive mentality is deeply embedded within the Credo group, with the words of behavioural economist Daniel Kahneman emblazoned on their office wall: ‘Optimistic people make a difference by taking risks.’
But even a glass half-full approach did not make then immune to the Q4 pullback, said Gouws, when their conviction was tested.
Markets fell during the final quarter as concerns over several issues, including the escalation of US-China trade dispute and fears that the Federal Reserve were normalising policy too quickly.
As such, the S&P 500 fell by 11.59 per cent in sterling terms, while the MSCI AC World index was down by 10.67 per cent.
Performance of indices in Q4
Source: FE Analytics
“Markets around the world, had their toughest periods, frankly, since the financial crisis,” he explained.
Nevertheless, Gouw said that while many were bearish coming into 2019 he was bullish and remains so.
“Why be bearish at this point in time frankly?” he asked. “The market is simply cheaper, and it was cheaper for two reasons.
“One, because it just had a bad quarter and prices came down. And secondly, is that typically on balance the typical S&P 500 companies made pretty strong earnings over the last 12 months.
“Both of those meant that the market was a lot cheaper than the year before. So why be bearish simply because we’re extrapolating the emotion from the last few months?”
Indeed, his bullish outlook has been justified after a strong start to 2019, despite the sell-off in recent weeks sparked by reigniting of trade war talk between the US and China.
He said: “In fact, it was so strong [the first four months of the year], if you go back all the way [around] 100 years, it’s been in the top handful, practically the top seven of all time.
“So that to me doesn't sound like a [reason to have] such a bearish standpoint.”
Performance of indices to end-April 2019
Source: FE Analytics
As the above chart shows, the MSCI AC World index rose by 13.29 per cent during the first four months of the year, while the S&P 500 was up by even more at 15.31 per cent.
To overturn a bearish stance, Gouws said investors should ignore the ongoing, negative macroeconomic and political issues as this should not impact on investors decisions to make high quality, long-term investments.
“We try to ignore the newsflow, even the structural, big picture arguments,” he explained. “We try and buy companies, good quality companies at reasonable prices and hopefully our clients will make money later on.
“Whether there's a trade war, whether there is going to be a good or a bad Brexit with Jeremy Corbyn being the prime minister is hardly relevant to buying good quality companies at reasonable prices and keeping them for the longer term.”
Indeed, the idea of looking through the ‘doom and gloom’ is supported by veteran investor Tony Yarrow, co-portfolio manager of the £115.3m TB Wise Multi-Asset Income fund.
Yarrow said: “The media, feeding us a diet of endless negativity, has not helped. But out there in the real world, the companies we have spoken to recently report they are in robust health and trading strongly.
“There are reasons to be concerned, but the filtering of only bad news into the headlines does investors no favours by keeping them on the sidelines.”
However, fully committing to a completely bullish approach could be a risky move according to Adrian Lowcock, head of personal investing at Willis Owen (pictured), who said going purely bullish now after nearly 10 years of a bull market would be a risky move.
Indeed, since the global financial crisis of 2007-2008, markets have soared as the low interest rate environment and quantitative easing (QE) measures have pushed investors into higher growth and riskier assets, such as equities.
As the below chart shows, the S&P 500 is up by 361.48 per cent, while the MSCI AC World index has risen by 222.14 per cent over the past 10 years.
Performance of indices over 10yrs
Source: FE Analytics
“Yes, I think there is a little more to come,” said Lowcock. “But it is reckless to increase risk at this stage.
“Rather be diversified and ensure capital preservation is central to your investments - it is easier to grow your wealth if you haven’t lost half of it in the first place.”