The caterpillar does all the work, but the butterfly gets all the publicity. (George Carlin)

This is a similar situation to the funds in my own portfolios. The 70% that take the strain in the boring ‘Slow Ahead’ and the slightly more exciting ‘Steady as She Goes’ Groups receive a lot less attention than they should. They go about their business quietly and with lower volatility.

Whereas the other 30% – in the more exciting and engaging ‘Full Steam Ahead’ areas of Technology, Emerging Markets, Asia and China – get my full attention and are never far from my mind.

One of my New Year’s investing resolutions was to turn this around and direct more attention to these low lying areas. At my age I am not looking to make decisions that might put at risk my family`s inheritance. At least that is the directive I have been given by my daughters! A global return of 10% to 12% should meet these requirements. Simple arithmetic says that 70% earning 10% p.a. would yield 7%p.a. and 30% earning 15% p.a. would yield 4.5%p.a. making a grand total of 11.5% p.a. This result doubles the pot every six years, and would certainly satisfy even my most vocal supporters.

This result would be less than I would normally expect to attain, but it would be achieved with far less worry and aggravation. Why chase the 30% to make big returns, whilst leaving the 70% to make low returns of around 5% to 6% as I have done recently?

There was a time, soon after the last financial crisis and at the height of QE, when getting 10% out of funds in the ‘Slow Ahead’ Group was straight-forward. Those of you who’ve been on board with us from the beginning might remember favourites like the ‘Old Mutual Corporate Bond’ – it went up by 36% in 2009 and 16% in 2010. It only went up by 4% in 2011, the year of the UK Gilts and Index-Linked Gilts, but then went up by 18% in 2012.

I’ve never felt particularly comfortable with the funds in the ‘Slow Ahead’ Group – it seems strange to me that people are investing in ‘fixed interest’ investments to get capital gains – and yet the numbers have been strong enough to convince me. Like the Saltydog demonstration portfolios, the majority of my ‘safer’ money has also been in the ‘Slow Ahead’ Group – that is no longer the case.

Look below, at the sector annual returns data for 2017, and it is not difficult to see that last year the sectors in the ‘Slow Ahead’ Group were not the most rewarding place to be – with annual returns varying between 2% and 6%. However, placing the bulk of a portfolio into the top sectors of the ‘Steady as She Goes’ Group, which has relatively low volatility, and the balance into the ‘Full Steam Ahead’ Groups would have made the overall target a shoe-in!

b6

Of course it would still have to be managed to keep the funds in the sectors carrying the momentum of the moment. It is most unlikely that one sector will continue its forward run for a complete year so it will mean changing horses throughout the race, but that is what makes it interesting. Watching the numbers and then taking the appropriate action is my message of the year to myself.

I do realise however that there will be times when abrupt financial market movements and politicians’ utterances will mean moving your investments quickly into cash, the only safe haven in those circumstances. Today we live in unsettling times, but for the moment we still move forward.

Remember there is nothing wrong with optimism, as long as you don’t get your hopes up.

Investing in Vietnam

“How stupid can you get?”, was a question teachers often used to ask me. “How stupid do you want?” was always my reply.

Over the last few years I have written articles about the attraction of Vietnam as an investment destination. Before proceeding further I must admit to travelling there 56 years ago when in the Merchant Navy, and now my youngest brother is a doctor in Ho Chi Min City. His experiences, and my recent visit, confirm my opinion of this country.

The population of Vietnam is around 93 million with an average age of 35 years. More than half now live in the cities and have aspirations to live a western lifestyle – this includes mobile phones and the internet.

Originally the roads were packed with bicycles, then it moved to scooters (carrying the whole family plus livestock) and now there are cars. Vast sums of money are being spent on roads, rail and infrastructure in general.

The country is self-sufficient in oil and rice, and the surplus is supplied into the rest of the Asian community. China, America and Japan have off-shored manufacturing here for a number of years due to the low wages and the “can do” attitude of a young population. When these countries do well, then so do the Vietnamese.

Just look at the graph below, showing two means of investing directly into Vietnam.

b3

In 2003 one of my first investments ever was into the VinaCapital Vietnam Opportunity Fund where my money almost doubled before I exited in 2007, fortunately ahead of the world markets collapse of 2007/8.

I revisited Vietnam five years ago to holiday with my brother, and the activity there was just simply startling. On my return to the UK I observed how the SDI numbers covering Asia and the Pacific region appeared to be turning favourable, so I reinvested.

Here is the rub, and the reason I was reminded of my old school teachers. Although I was aware of two ways to make an investment into Vietnam, through an Investment Trust or an ETF, I only ever used the VinaCapital Vietnam Opportunity Fund. This was the one I was familiar with, and I ignored the Vietnam tracker ETF. I put all my eggs into the one basket, and then compounded the error by not keeping track of the performance of the ETF (both investments feature in the Saltydog numbers).

A quick glance at the table and the graph for the last six months hammers home the error of my ways. That has now been rectified.

b4

b5

Now don`t get me wrong, this single investment has proved very lucrative. But it was poor decision making to travel solo.

As for the future, will this performance continue? Who can be certain, but if China and Japan continue to perform well, and they are on Vietnam`s doorstep, then why not?  This probably also applies to the Asia Pacific region in general.

 

Ninety nine percent of Financial Advisors give the rest a bad name!

Now as you all know, I do not profess to be an authority on financial investment. I am just a person who together with Richard and David has come up with a system of producing a regular supply of unbiased fund performance numbers which indicate the direction of travel of the I.A.sectors and investment funds. Anybody with access to these numbers, and a good fund supermarket to place their trades, should be able to enjoy success.

The idea is pretty simple. Use the numbers, and endeavour to rule out sentiment and the outside noise that comes from financial commentators dressed as life-guards throwing you anvils.

That is the tricky bit and definitely what I find difficult. I enjoy reading and sifting through financial comment and numbers. Unfortunately, this has on occasions resulted in my anticipating a trend which has subsequently turned out to be a mirage. I am fighting with such a situation at the moment in the form of Mr Trump and the USA Market.

In the last year, the world`s intelligentsia and media have enjoyed poking fun at the intemperate tweets of the President. However the financial situation for the USA, for the working class and blue collar workers, could well be on an upward self-sustaining virtuous spiral.

  • The imminent lower corporate tax structure changes could persuade the large American conglomerates to repatriate their financial offices back into the USA. This would result in more taxes being paid and business expansion occurring at home, which means more employment.
  • These same large conglomerates have also been offered a one-off low tax payment on the trillions of dollars they already hold offshore so they can clean up their act and be good Americans. If this occurs, then the USA debt can be reduced and large amounts of money can be spent on improving infrastructure. Again more employment.
  • The dollar has also fallen to a low value against the standard international basket of currencies. This must result in higher exports and lower imports, both of which create employment at home.
  • At the same time as the above is happening, employment has already fallen to a very low level and wages have started to rise as demand outweighs supply. This trend must surely accelerate. More people at work with more money to spend will continue the demand for more goods. The tax collection also rises and the country has a virtuous circle of expansion.

Therein lies my problem, for if I put any credence in the above argument I would expect it to be showing in our Saltydog numbers and it does not. I have graphed a great many of the American funds that we cover and by and large they have very similar results. One year results of 5%-10%, three years 45%- 55% and five years 130%-140%. Their performance is falling and this at a time when the USA stock markets are approaching all-time highs.

I would have expected fund prices to follow the market trends, but apparently not.

Maybe the market is inflating on the back of the major technology funds and is not yet reflected in the market sectors as a whole. Perhaps as Sterling investors, part of the poor performance can be laid at the door of currency movement because Sterling has appreciated against the dollar by around 10% in the last twelve months.

These however do not account for the large discrepancy between the market and fund price movements. Still, what do I know?

The Ocean Liner made a small investment in an American fund at the end of last year, but my personal portfolios will remain un-invested in this sector until I understand more, and the numbers start to reflect the arguments.