Data key as wealth managers gear up for volatile summer
By International Adviser, 1 Apr 16
Like Janet Yellen’s Federal Reserve, it would appear that UK wealth managers are planning to be very data dependent in the second quarter.
The majority of market speculation is centred on the US dollar, as talk now seems to surround one interest rate hike in the latter part of 2016. This has seen the US dollar rally somewhat, and when the dollar is strong, we often see weakness in the oil price, which has come back to $38 having touched $41.50 ten days ago.
Given this, combined with mid-February’s market falls, we made some changes to our portfolios to make them as defensive as possible given the macro and political situations that are currently presenting themselves.
We decided to shift the equity element of the portfolios slightly to make sure we had a little bit more exposure should the market rally off, what we perceived to be, the lows on February 11th.
At of the end of last week, the funds we bought during this time had seen significant increases, the Baillie Gifford American Fund, for example, was the strongest with a move from 327.5p to 384p or a gain of c15%. With similar gains in other funds, we decided that, given such good returns over such a short period, we should bank them (particularly as markets seem to lack any clear momentum to move much higher).
Given that we had made a few similar changes by selling our ETF positions after the ECB decision a few weeks ago, this meant that for most portfolios, we would be holding an overweight position in cash going into a period where we believe market volatility will stay high and earnings expectations low. This means that we could see a greater chance than not of being able to hold cash and use this as liquidity to buy back into these equity holdings at a lower level and repeat the above trade once more.
The OPEC and non-OPEC nations meeting in Doha on April 16th is on our radar. The oil price remains a hot topic and we are looking for an agreement to cut oil production significantly rather than simply freeze it at current levels. The move in Crude from $28 to $40 per barrel was more the result of speculative activity using options rather than any significant change in the fundamentals, so to sustain these higher levels we now need to see a cut in output. Should that not happen, then do not be surprised if this accounts for another market sell off if the oil price tests the low $30s once more, which, in turn, may push the US$ higher. If this happens, we expect volatility to increase once more.