The Blog

September Market Update

Correlation causes concern September may be remembered as the month where the markets reached their most recent peak. At this stage the market has become very data dependant again, and the “lower for longer” argument is being well and truly tested as we approach the next US Federal Reserve Open Committee meeting. In the first two weeks of September we have seen the US S&P500 index decline, and more interestingly the global bond market also sell off (yields rise). This correlation in performance between bonds and shares has been something that Private Wealth Advisers has been concerned about for a long period of time, and hence we have been recommending larger levels of cash in our clients’ portfolios. Secondly we have reports from OPEC that the demand for oil is expected to stay lowers for longer, and the production from non-OPEC members is expected to remain high. This has led to a fall in oil prices, and made the markets nervous. So is this the start of the next major correction (bear market), or is this simply another “Tapper Tantrum” as […]

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Market Update July 2016

Expect the unexpected Last month the British public went to the polls to vote on staying in the Eurozone (Bremain) or leaving (Brexit). Brexit won by a vote of 51.9% to 48.1%. This shocked markets, with share values declining, the pound dropping to an historically low level, and bond market prices rising. While the result was surprising we feel that when you break down the results, the underlying issues are more interesting. The referendum had a turnout of 72% of voters, which was 6% more than the recent general election. People were motivated to vote. There was a clear divide in the results by class, with managerial and professional classes voting 62% to 38% to stay, and working class supporters voting 63% to 37% to leave. The working class is clearly frustrated with those in power. Within the 12 UK regions only three, being Scotland, Northern Island, and London voted to stay, with the rest all showing a majority vote to leave. Could this lead to Scotland leaving the UK? This was not some much a vote against the Eurozone, […]

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Brexit and your portfolio

Private Wealth Advisers June 2016 update  Contents: •    Brexit – how will this impact my portfolio? •    Personnel changes at PWA Brexit – How will this impact my portfolio? As we have discussed in the past, Private Wealth Adviser’s primary goal is capital preservation.  In this regard we have been anticipating increased volatility in the share and bond markets for some time and have steadily been reducing your portfolio’s exposure to shares, and increasing the levels of cash over the past 1-2 years. We have also been recommending fund managers that are not limited in the level of cash that they can hold in a portfolio, which has allowed a number of the managers we recommend to move large positions into cash during this volatile period. Lastly we have made use of local share managers that are able to position their portfolios to protect capital in a falling market through “shorting” the markets. These are all steps that we have taken in an effort to limit portfolio declines in times of market stress, and will continue to follow this approach until […]

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$5.5t USD in negative yielding government bonds!!

JP Morgan estimates that over $5.5t (yes, trillion) of investor funds are currently in negative yielding government bonds. To put that into plain interest, if you purchased $10,000 (Euros to be correct) worth of German 5 year bonds currently at -0.308%, after 5 years, your $10,000 would be worth $9,846.94. To clarify, this doesn’t mean that the quarterly interest payments are negative, it means that the amount an investor is prepared to pay for the bonds is so expensive, that when it matures; combining the capital being repaid (the face value) and any income generated works out that the ‘total return’ or ‘yield‘ is negative. If, like most people, you are asking why someone would invest into a bond which returns negative yield, this article discusses a few ideas, mostly that it is about having liquidity (meaning they can access their funds quickly if needed). However there are a number of reasons behind this and trying to pin point exactly why is a waste of energy, it just goes to show that looking to the past to predict the future will be […]

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Waterman Capital Presentation 15th February 2016

Waterman Capital is a private equity investor established in 2004 to provide capital and management expertise to mid-market businesses based in New Zealand, with a long track record of investing in, and adding value to businesses in that space. We are excited to offer you the opportunity to attend a presentation from Executive Directors Lance Jenkins, and Chris Marshall to hear about an opportunity to invest in their third fund.

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Responsible Investing

Why investors should be concerned about a dam bursting in Brazil The Responsible Investment Association of Australia state “Responsible investors all understand that companies or assets won’t thrive whilst ignoring environmental issues (pollution, climate change, water and other resources scarcity), social issues (local communities, employees, health and safety), corporate governance issues (prudent management, business ethics, strong boards, appropriate executive pay) or ethical issues.” On November 5th, 2015 a dam co-owned by BHP burst, killing 13, injuring hundreds and impacting thousands. Brazil’s government has subsequently filed a law suit against BHP and Vale for $5.2b USD to compensate those affected. Investing ethically is no longer about being a ‘green, tree-hugging hippie’, it is about understanding that companies who cause catastrophic disasters will be hit where it hurts, usually in the form of billions of dollars, which in turn, hurts the shareholder. BHP price post 5th November 2015 source: Bloomberg   How Sustainability Can Drive Financial Outperformance The University of Oxford and Arabesque Asset Management have undertaken a study which analyses the links between “responsibility and profitability”. There is a drive for transparency for the stockholder. […]

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Eurozone – Further easing expected

Eurozone – Further easing expected The Eurozone markets are anticipating that the European Central Bank (ECB) will increase the Quantitative Easing (QE) program in 2017. This has led to the European debt market interest rates continuing to fall into negative territory with 40% of all Eurozone government debt now offering investors NEGATIVE interest rates. We anticipate that the QE will continue into 2016, and potentially into 2017, as the Eurozone continues the slow grind out of recession. Once the ECB ceases the QE this will leave only Japan underwriting the excessively high asset prices around the world, which will lead to more uncertainty around the sustainability of prices, and we will be watching all markets with an increased level of concern Chart 1 – Who’s still doing QE? Source: BoE, DB Global Markets Research Chart 2 – Negative Yields on Euro Gov Source: Jack Di-Liza, Bloomberg Finance LP, DB Research

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Market Update

When will rates go up in the US? Globally the financial world remains focussed on Janet Yellen, Chair of the Board of Governors of the Federal Reserve (the Fed), as she continues to suggest that the Fed will increase interest rates in the US at some stage before the end of this year. As shown below in chart 4 the market is now pricing in a much higher expectation of rates rising in December 2015. If the US Fed does commence tightening in December we can expect to see the market volatility increase for a short period of time, before potentially moving into a more sustainable growth period. As shown in the table below in the past we have varying performance through tightening cycles, but on average it has been a positive share market with a sustainable climb in values. This table comes with the common disclaimer that past performance is not a good indicator of future performance, but while history may not repeat to often, it certain rhymes.      Chart 1 – Market’s assumed probability of a move   Table  […]

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