Market Outlook Summary
Wall Street's best January for 32 years
Wall Street completed its best January since 1987 stocks continued their recovery from a sharp sell-off in December.
The US Federal Reserve’s indication on Wednesday that it would not raise interest rates this year helped to extend January’s gains, with the S&P 500 index of America’s leading companies up by 0.9 per cent, or 23.05 points, to close at 2,704.10, giving it a monthly gain of 7.9 per cent, its best January percentage rise in 32 years.
Risk is paying off for those who give up gilts on yield to shares
Buoyant dividend growth and falling share prices have pushed the yield on UK shares to 4.4 per cent. Further dividend growth is likely this year — not despite economic uncertainty, but because of it.
Companies are holding back on expansion plans, nervous of the political turmoil at home and the stuttering of the world’s larger economies. The consequence is healthier balance sheets and increased dividend payments to investors.
Why you should sink your teeth into 'FAANG' stocks
The past few months have been turbulent for the five technology giants known as the Faang stocks — Facebook, Apple, Amazon, Netflix and Google (owned by Alphabet). After trebling in value between early 2015 and mid-2018, when it briefly broke the 3,000 barrier, the FANG index of technology stocks slumped almost 1,000 points to just above 2,000 in December, before again surpassing 2,500.
Our Reeves model investment portfolios maintain exposure to FAANG stocks via the Scottish Mortgage Investment Trust PLC.
Targeted Absolute Return Funds
Targeted Absolute return funds are billed as the ideal place for investors to park their money in the face of stock market turmoil. Yet a study by AJ Bell, an investment platform, shows that these funds, which aim to provide positive returns in all market conditions, and which hold more than £72 billion of investors’ money, are not living up to their promise.
Reeves Independent has consciously avoided absolute return funds, having failed to be convinced of their perceived investment attributes.
£55bn of live savings lie in dog funds
Almost £55 billion in savings is stuck in poor-performing funds. What is more, we are paying about £537 million in fees for the privilege.
Reeves Independent is committed to maintaining our selective approach and cautious due-diligence when selecting funds for our model investment portfolios. In doing so, we have a solid track record in avoiding 'dog funds'.
Dividends reach record high
Dividend payments by the world’s largest companies hit a record $1.37 trillion last year, equivalent to the gross domestic product of medium-sized economies such as Mexico or Australia. Dividends to shareholders grew by 9.3 per cent year-on-year in 2018.
The latest surge was because of a recovery in the prices of energy and raw materials, which boosted oil companies and miners. The study found that the return of more banks paying dividends was also a factor, as were corporation tax cuts in the United States.
Our clients should not ignore ignore/overlook the higher dividend yields we have enjoyed via our selected investment funds and enjoy them whilst they last. It is likely that even if future dividend levels fall slightly, they will still beat money interest rates and represent an additional income bonus to long-term capital appreciation from selected investment funds.
It is important that no actions should be taken without first taking advice. Personal circumstances and an individual’s appetite for risk means that the advice for one person may not be the same for everyone. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at February 2019.