Investment Market Review
For 84 of the 91 days in the quarter, domestic international and emerging market equities, property and fixed interest markets were reporting positive gains.
Then ….just before the end of June, UK citizens voted in a referendum for the nation to withdraw from the European Union. The result, which defied the expectations of many, led to market volatility as participants weighed up possible consequences.
Reporting on the result, The Washington Post said the vote had “escalated the risk of global recession, plunged financial markets into freefall and tested the strength of safeguards since the last downturn seven years ago”.
The Financial Times said ‘Brexit’ had the makings of a global crisis. “(This) represents a wider threat to the global economy and the broader international political system,” the paper said. “The consequences will be felt across the world.”
After the initial “shock” markets have functioned normally. Indeed, within a few weeks of the UK vote, Britain’s top share index, the FTSE 100, hit 11-month highs. By mid-July the US S&P 500 and Dow Jones industrial average had risen to record highs. Shares in Europe and Asia also strengthened after dipping initially on the vote.
On currency markets, the pound sterling fell to a 35-year low against the US dollar in early July. The Bank of England later surprised forecasters by leaving official interest rates on hold.
The Brexit vote did lead to initial volatility in markets, but this has not been exceptional or out of the ordinary. One widely viewed barometer is the Chicago Board Options Exchange’s volatility index or ‘VIX’. Using S&P 500 stock index options, this index measures market expectations of near-term volatility.
None of this is intended to downplay the political and economic difficulties of Britain leaving the European Union, but it does illustrate the dangers of trying to second guess markets and base a long-term investment strategy on speculation.
Another recent example of this tendency came shortly after the Brexit vote, in the Australian general election, where a much closer-than-expected result sparked media speculation of severe economic and market implications.
Pessimism sounds smart. It seems somehow to make more sense. Taking action at a time of “crisis” seems logical.
However investing is about probabilities. Over the last 100 years, markets have gained around 10 0% a year. Over the last 30 years, returns have been slightly higher at 10.8% a year.
The three decades that included the ’87 crash, two Iraq wars, 9/11, the tech crash, the GFC and the mining boom and bust.
Inevitability, fears fade and markets recover; often much faster than seems likely at that moment when fear is the overriding emotion. Sticking to your long term strategic investment plan, even when the outlook suddenly seems challenging, remains the most prudent way of ensuring that you achieve your long term goals and objectives.
Markets never move in straight lines
Key Market Movements
+1.80% (hedged to NZD)
All returns are expressed in NZD. It is assumed that Australian shares and international property are invested on an unhedged basis and therefore returns from these sectors are susceptible to movement in the value of the New Zealand dollar.
New Global Sustainability Trust
A growing number of people are looking at ways to align their investment choices with their personal philosophies. Since 2006, Dimensional has offered U S mutual funds using social screens to meet a growing demand for responsible and sustainable investments.
Environmental and Sustainability Screens
The Fund screens across and within industries supporting sustainable business practices at both a portfolio and industry level. In particular the Fund screens out companies that are harmful to the environment, and in particular, carbon emissions or fossil fuels.
Below are modelled the reductions in carbon emission associated with the application of the Fund’s screens.
The Fund also seeks to screen out companies that potentially or are actually affecting the planet by way of:
The Fund also applies social screens and excludes companies that receive a significant portion of their revenue from; adult entertainment, alcohol, gambling and tobacco. The Fund also excludes companies associated with the manufacturing of ammunitions and munitions systems and components.
New Zealand and Australian Investment
In conjunction with this new Fund we have developed our own in house Australasian share offering that applies similar criteria to those of the international share Fund. Thus enabling those wishing to invest in a socially responsible manner are now able to.
This document has been provided for general information purposes only. The information is given in good faith and has been prepared from published information and other sources believed to be reliable, accurate and complete at the time of preparation but its accuracy and completeness is not guaranteed. Any information, analysis or views contained herein reflect our opinion at the date of publication and are subject to change without notice. To the extent that any such information, analysis, views or opinions may be construed as advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised advice under the Financial Advisers Act 2008, nor do they constitute advice of a legal, tax, accounting or other nature to any persons. Past performance is not indicative of future results and no representation or warranty, express or implied, is made regarding future performance. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this document or its contents.