It’s been a white-knuckle ride for investors and savers this year with highly volatile markets.
In the first quarter, UK and US markets both fell by more than 30% due to the pandemic, something nobody could have seen coming. This was a classic so-called “black swan event’’ – something unforeseen with far reaching consequences.
Of course, there’s nothing new about volatility. Markets, such as the FTSE 100, can be described as choppy, surging or crashing, all indicating large swings in the return. Take Reeves’ portfolios: over the past three years, or 150 weeks, overall returns have been positive, but in more than a third of those weeks, our portfolios fell in value, so we averaged one week down and two weeks up.
Just to make life more interesting, this two steps forwards, one step backwards process hasn’t performed to any regular pattern. So, while over the longer term, you can expect to make a positive return, you shouldn’t look for a steady upward gradient. It will happen in fits and starts and with some falls – often quite steep.
Not only is volatility inherent in the whole investment process, so is risk. Sometimes it’s those people who take the biggest risks who make the biggest gains, but, the other side of the coin is that they’re also exposed to the greatest losses. An important truth about risk is that being more adventurous in investments doesn’t guarantee higher returns, it only gives you a greater chance of achieving them – or losses.
At Reeves we take time to understand the needs and circumstances of our investment clients and their individual attitude to risk, from which, we create their investment plan. During turbulent times like this, we ask our clients to stay focussed and stick with the plan which was created for them. Don’t panic - we have a strategy linked to individual goals, life stage, risk and external factors.
We don’t attempt to anticipate market shifts on a day-to-day basis. We take a strategic approach, looking at the way markets are likely to move in the medium to long term and – most importantly – what the impact of this is likely to be on our clients’ lives. Our regular oversight and review avoids us having to make frequent sharp corrections. This approach is a well-established, tested and proven investment strategy.
We make routine changes to our portfolios in anticipation of changing market conditions and we keep our clients informed through regular communications. At other times, when appropriate, we contact clients to alert them to certain issues and set out their options, which might involve a temporary adjustment to their risk profile. Or, we might telephone a client to discuss their situation and maybe propose a bespoke solution.
Frequent communication with our clients is key, a Tactical Reeves client can expect to receive an email every quarter with our latest investment advice. We give a recommended course of action, along with a brief explanation of the reasons behind it. That is the fruit of twelve weeks of detailed market research, analysis and discussion, a carefully structured continuous process developed over many years. A monthly market and portfolio update is released via the Reeves Independent Website and Client Newsletter.
At Reeves, we have three investment analysts – two internal and one external – and an external investment adviser, who produce a weekly market outlook to be discussed at weekly meetings. One analyst keeps a daily eye on every fund and portfolio, so that none goes unmonitored for more than one working day. We also we have automatic alert on every single fund in the event of any significant movement.
At every weekly meeting we review whether we would create the same portfolios and, if we decide that we wouldn’t buy an investment on that day, then we take the view that it shouldn’t be in our portfolios at all.
There’s also a meeting held every four weeks to discuss a report prepared by the analysts. In the week immediately preceding each monthly meeting our investment team compiles a report of the main holdings in each of our portfolios. This means that every email with recommended investment decisions is the product of no fewer than 10 meetings.
We also use high level external advice and every week we arrange either a phone call or zoom meeting with a different fund manager of an investment within the portfolio to give a presentation on the outlook of the fund.
We have recently expanded the number of highly qualified and experienced staff in our client services and marketing teams to develop and maintain the highest level of relevant and useful communication with our clients. We have been recognised by the Financial Times again, being listed in their Top 100 Financial Advisers, an award which reflects our knowledge, client focus and pro-active client service.
Ours is a structured system, but it remains flexible, able to react immediately to extraordinary market conditions. Also, our ongoing research and monitoring means that our holdings are chosen on the basis of their ability to perform well in any likely market conditions.
All our portfolios saw a positive return through Quarter 3, this is especially pleasing because the FTSE 100 has shown a net loss over the period. We have also seen an increase in volatility in markets with the S&P 500 falling over 7% in September, reflecting rising unpredictability in US markets and the popular technology sector in particular.
We have been pleased with the performance of all portfolios throughout the pandemic and we’re currently comfortable with our level of caution over short term market prospects. Our model portfolios are currently reflecting our defensive position, being overweight in cash and bonds and underweight in UK and overseas equities.
At Reeves, we discuss risk and your capacity to loss to determine what level of risk is appropriate to your temperament and circumstance. But, the fact remains that market ups and downs and risk are part of the investment process and always will be.