It’s time to put your money in motion

With earnings season mostly behind us, the corporate news mostly over, the summer doldrums are here with most people focused on what is left of their vacation period and not the markets. We are now truly at the half year mark, an excellent time to review your current investment portfolio (available online at our web site www.investments-intl.com) with a view to adjusting your asset allocation mix before getting into the third quarter earnings acceleration of September.  As presented in last weeks article, the US’s ISM report was extremely positive, more so than expected, with the non-manufacturing index for July coming in at its highest ever, 65.1. Notwithstanding the positive economic data, the markets slumped on concern over what could be termed “the neutral bias of the US Federal Reserve” of late.

All but two of the major global indexes were off on the week with only the DOW and the FTSE 100 gaining positive ground. When the US Fed took a lead from in front approach, investor confidence seemed higher and certainly willing to follow, but now that the US Fed has stepped back to take a wait and observe attitude (because they believe enough has been done to stimulate the necessary foundation for economic growth) investors have stepped back too. At the time of writing, the Fed has yet to announce its decision (due on Tuesday) as to any change in short term rates, but we expect no change. The neutral bias is what is right, but the market may not like it. We are in the rocky seasonal period for stocks. From now until Halloween, the stock market history supports caution. The US Federal Reserve has probably cut interest rates for the last time. They are simply observing data which suggests they believe that a recovery is starting or likely to start. The US Government agencies have applied massive stimulus and are doing so coincident with a weakening dollar and a rising federal deficit. They see the tax cuts hitting the economy this quarter. We think their work is done and that the US will lead a global recovery. Perhaps now is a good time to review investment strategies that count. Portfolio planning accounts for 80% of an investment portfolio’s success with only 17% of growth attributed to timing and security selection. That is to say, buying a house in Westmoorings 10 years ago was a good decision, which year and what house really had little effect on the overall investment performance at this point in time. The same can be said for many other districts in TT. Thus, making the simple decision to invest in real estate, or equities or bonds, account for most of the end result.

That said, fundamental asset allocation theory now favours equity (ownership) positions over debt and cash (rental) positions. Thus the average investor needs to find a home for about 65% of his current net worth in ownership positions. The emotional trauma of the last three years has left many investors overly cautious and thus an opportunity has arisen for those who have the courage to review and make a rational forward thinking decision. We still favour a bias towards the value investment selection process over growth prospects but continue to place emphasis on small to medium capitalisation issues where we believe the greater opportunity exists for earnings and market share improvements. Thus our recommendations focus toward the Franklin Templeton Mutual funds which are stalwart performers in this regard and clearly demonstrated their conservative posture over the past 36 month down turn. Looking forward, we find it hard not to see the Health Care, Financial Services, Consumer Discretionary and Technology Sectors playing a significant role in our future life styles and thus remain over weighted in these sectors.

E-mail : darcy@investments-intl.com