Wall Street's best January for 32 years
Wall Street completed its best January since 1987 as 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.
Stock markets generally see low interest rates as a positive factor. Recent developments in trade talks between the US and China have also supported equity prices. Although the Dow Jones industrial average slipped 0.1 per cent, or 15.19 points, to close at 24,999.67, it was still up 7.2 per cent since the start of the year, its best January since 1989.
Risk is paying off for those who give up on gilts and 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.
The benefit for investors is that shares offer great value for those prepared to take a long view — as investors always should. Dividend yields have not been this high since, briefly, at the time of the financial crisis in 2008 and then before that in 1991 shortly after inflation had hit a peak of 9 per cent and the UK economy was in recession.
We should not overlook the attractive dividend yields currently being paid on the equity based investment funds within our model portfolios.
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 FAANG index of technology stocks slumped almost 1,000 points to just above 2,000 in December, before again surpassing 2,500.
The oscillations in share prices reflect investors’ concerns over high valuations, slowing demand for key products, such as Apple’s iPhone, and fears that the FAANG’s share prices will be damaged by issues such as aggressive tax avoidance and concerns over Facebook’s privacy controls. Yet the latest series of earnings reports appear to show the tech giants in pretty robust financial health.
Despite being at the centre of controversies over personal data breaches, fake news and much else, there are still reasons to back the tech giants
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.
Almost half of the 105 absolute return funds failed to match the meagre return from a deposit account.
Laura Suter, a personal finance analyst at AJ Bell, says: “Only one fund, Natixis H2O Multi Returns, run by the French investment bank, delivered a positive return in each of the three years, and only just scraped by in 2016 with a return of 0.1 per cent after fees. She says that four Absolute return funds registered losses in each of the past three years: Insight Absolute Insight Currency, Kames UK Equity Absolute Return, Schroder European Equity Absolute return and Threadneedle Absolute Return Bond.
The enormous Aberdeen Standard Life Global Absolute Return Fund (GARS) has shrunk from £26 billion to £12 billion, as a result of withdrawals and poor performance.
There has been a large disparity in returns over the past three years contradicting claims that the Absolute return sector is full of stable funds that preserve investors’ wealth year in, year out.
More than £7.2 billion has been ploughed into the funds in the past three years as worries grow over the impact of Brexit, global tariff wars and general economic slowdown. However, AJ Bell says that only 64 Absolute return funds of 105 generated a positive return over that time, and 59 beat the 0.6 per cent average return on an easy-access savings account. Some financial experts are warning that they could be the next mis-selling scandal.
Reeves Independent has consciously avoided Absolute return funds, having failed to be convinced of their perceived investment attributes.
*This information was sourced from The Times, January 25th, 2019 5:00pm
£55bn of saving 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.
There are 111 poor performing funds, according to Bestinvest, up from 58 six months ago, and 26 this time last year. More than half are invested in the UK market, which has been battered by Brexit.
Savers choose actively managed funds in the belief that they will outperform the market, yet in many cases a tracker (passive funds that replicate the performance of a designated index) may be a better bet. The number of active funds that have underperformed the market for three consecutive years has risen four-fold in the past year, according to a report identifying poor performing, or dog, funds, by Bestinvest, an online investment service.
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'.
*This information was sourced from The Times, February 9th 2019, 12:01am
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.
Dividends, which have almost doubled in the space of ten years, are the lifeblood of pension funds, which rely on them to help to pay rising retirement benefits.
Dividends tend to be more stable than profits because company managements store up cash for more difficult times and are reluctant to cut. The high yields — dividends divided by share price — of some companies are worrying investors that some higher dividends are not sustainable going forward.
Underlying dividend growth, which strips out special dividends, accelerated to 8.5 per cent, the fastest for three years, according to a study by Janus Henderson, the asset management group. However, it warned that the underlying pace would slow to 5.1 per cent this year.
Our clients should not 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.
*This information was sourced from
This article is in the opinion of Reeves Independent financial advisers only and is not intended as advice and no investment decisions. The information in this blog or any response to comments should not be regarded as final advice. 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.