APRIL MARKET UPDATE

We discussed in the March update that 2018 has seen equity markets return to more reasonable (though still not cheap) valuations, with the FTSE100 declining near (10%) from its peak at the end of January.

While this fall in equities provided the opportunity to increase our equity allocation, we still remain underweight international equity. Stock markets in 2017 were driven by a narrow coterie of largely tech focused stocks (especially in the US where Alphabet (Google), Amazon, Facebook and Netflix dominate), while the overwhelming majority of companies had static or falling share prices.

The recent market sell off has seen a reversal in fortunes for the tech stocks, dragging down the indices. The issues surrounding some of these tech stocks go beyond current trading and pose potentially existential questions over their business models. Can Facebook be so cavalier with its users data and maintain the confidence of its users? Will the focus of legislators intensify on repatriating ownership and portability of user data back to users? Can Amazon turn retail into a profit free zone and pay essentially no tax without political consequence?

Amplifying these concerns is the prospect of President Trump possibly initiating a global trade war and a slowdown in the synchronised global growth enjoyed over the last year. It is probable that the recent volatility will persist at least in the short term.

Consequently, we maintain over 10% of the model portfolios as cash. Our approach is predicated on maximising long term growth; the first step in doing that is to minimise the likelihood of losing money. We can never predict market falls, but we can constantly assess the circumstances in which taking investment risk is likely to lead to sufficient reward to make it attractive to do so.

Should market declines provide further opportunities for investment we have the capacity to take advantage of it. If not we will remain patient and focus on building resilience in our portfolios.