When kipling wrote “if you can keep your head when all about you are losing theirs...”, it’s unlikely he was referring to the financial markets. Yet it is nevertheless an appropriate adage for recent reactions to global stock market activity. We at clear cm remain exceedingly calm, and our planned changes to asset allocations have gone ahead despite the latest volatility.
During 2017, we saw some pretty great conditions for investors. Maybe too great, in fact. When stock markets are riding high, there is a tendency for people to get a bit excited - resulting in an artificial spike.
But at Clear CM we never get too excited. We keep our emotions in check and plan our asset allocations based on a longer-term view.
We have nevertheless made some recent changes to our tactical asset allocation.
Our key change has been to introduce UK commercial property funds into our models. The reasoning behind this decision is twofold:
Firstly, it has been Clear CM’s long-term plan to diversify away from exclusively allocating to equity and fixed interest assets. We believe the move into commercial property funds will provide us with a strong yield while keeping portfolio volatility to a minimum.
Secondly, we believe that a rotation from UK fixed interest instruments to UK commercial property will also negate the capital value erosion effect we will see in bond markets due to rising interest rates and inflation.
Meanwhile, in terms of Clear CM’s other asset allocations, we have remained well underweight in the US markets due to extreme valuations and cynicism regarding how long they can maintain their current levels. We have slightly tapered this position, however, in light of tax reforms and a potentially favourable business environment over the next year.
Despite recent downward spikes, we have also maintained a healthy allocation in emerging markets equities. These include Japan and Asia Pacific equities, as well as UK equities, where we see favourable valuation indicators.
In addition, we have kept 2% in spare cash in our lower-risk model portfolios while we consider a position in gold here to hedge against a market downturn.
The recent increase in market volatility was created more by knee-jerk reactions, and emotional factors, rather than fundamental stock values and economics. But rest assured, at Clear CM we think long and hard about our asset allocations. We find it works so much better