Is there any oxygen left in today’s markets?

Three weeks ago we saw some of the markets drop. The Chinese, Emerging Markets and Technology sectors took the biggest knocks, with some funds losing between 10% and 15%. These sectors, along with UK Smaller Companies, have been my favourites over the last year making very nice gains. Now as I had indicated before, I sold half of my holdings at the start of the rout which mitigated most of this loss, fortunately leaving a very substantial profit.

The question is “what do I do next?”

I have been waiting for our numbers and graphs to show which way these sectors are now going to move – so far there are no clues. Small ups and downs with no definitive direction, and definitely no Santa Rally. The whole situation is starting to make the inside of my head itch!

It’s a question of patience and an understanding that you cannot force, or time, the markets. Jesse Livermore said many quotable expressions and here are two;

“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street.”

“What beat me was not having brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favoured my play.”

I feel that with Brexit and the EU on this side of the Atlantic and Mr Trump on the other side, good political news is going to be hard to come by. Therefore the market is likely to remain as it is today; like a corpse waiting for an autopsy!

With this and Jesse Livermore`s words in mind, I intend to sell the balance of my holdings in the Chinese, Emerging Markets and Technology sectors. Holding cash whilst things sort themselves out will feel more comfortable.

I need to do this straight away, as I have reached the age where my train of thought often leaves the station without me!

Time for another look at ‘Slow Property’?

Last weekend I spent a considerable amount of time agonising over whether to reduce my exposure to the Technical Funds, and other dollar influenced investments such as China. After a week that had seen some of these funds fall by as much as 6%, was this the time to make a tactical retreat in order to fight another day?

The fall was attributed to sterling strengthening as a result of favourable comments concerning the path of Brexit. (My goodness how I am getting to hate that word). However my calculations indicate that there must have been other influences apart from currency to create this substantial downward move. I put this down to an additional sell-off in the Technical and Chinese funds themselves.

In the end I decided to sell half of all my funds in these sectors and then wait and see in which direction they headed this week. That was very hard for me to do as these funds have been a wonderful investment over the last year, but I thought it wise to err on the side of caution. If I am wrong I will simply buy back, but if they continue to fall I will sell the balance. At the moment it looks likes they have stopped falling, and may be starting to pick up again.

There are good arguments to suggest that a sensible Brexit (sorry) would see sterling recover back towards the $1.50 mark. If that occurs, and it is in the interest of both the UK and the EU for this to happen, then dollar based funds will fall again.

The next question is where to put the proceeds of these sales? I am already holding enough cash and do not want to see this percentage rise. I’m really looking for something that is relatively safe which can earn something, however small. This led me to look again in the slow property funds which burnt me badly at the time of the Brexit referendum. In this week’s numbers they feature in our 4 week data in the ‘Full Steam Ahead – Developed Group’, with four week returns ranging from 0.4% to 0.9%.

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At the time of the UK referendum all of the UK property funds went down. Many changed their pricing policies, imposed dilution levies and temporarily stopped any withdrawals. Since then they have been making relatively steady progress. In the last year the Standard Life fund is up 6.4% and the Aberdeen fund is up 6.5%.
Here’s what the top two funds have done over the last two years.

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These funds would seem to me to counterbalance the sterling movement. If Brexit struggles then the Tech and China stocks will not suffer from currency movements, if it is a success then these property funds have no reason to fall again as everyone will love the UK.

I’m going to invest some of the money released from my recent sales into these property funds again, and hold my breath whilst the politicians and bureaucrats perform their machinations.