Every month that passes creates new trends to digest, and new analysis to undertake. An investor's job is to keep track of these changes but not let short-term market noise dictate the integrity of his or her portfolio. At Flying Colours, we try to cut through the market froth and make sensible, intelligent decisions for our clients with a focus on long-term value.
One of the key trends driving markets in 2016 has been the record low bond yields seen across most of the developed world.
A combination of low inflation, subdued global growth and aggressive bond purchase programmes by central banks has helped push bond yields lower and lower. At one stage in August, an investor was locking in an interest rate of just 0.52% per year for the next 10 years for lending to the UK Government.
To combat this lack of value, we made the decision to shelter some of our clients' assets invested in our Dynamic Portfolios in cash. While these positions hurt earlier in the year, October saw a sharp reversal in bond yields meaning UK government bond funds delivered a 4.9% loss for investors (remember, bond yields act inversely to prices).
The rise in UK government bond yields also led to losses from sterling corporate credit - that is bonds investing in company debt. Funds exposure to this asset class fell 3.8% in the month. In October at least, cash was king compared to UK fixed income.
On the flipside, it was another strong month for overseas equity investors, with sterling weakness providing a tailwind for global equity markets. Japan (+7.9%), Emerging Markets (+6.5%), Europe (+6.0%) and US (+5.4%) delivered nicely when compared to the UK index return of 0.7% in October.
Looking forward, investors are nervously anticipating a key geopolitical event - the US Presidential election, which will be decided next week.
Donald Trump and Hillary Clinton offer radically different visions for American domestic and foreign policy. The uncertainty makes it very difficult for investors to plan in advance and we will continue our mantra of focusing on value ideas that will deliver over the long-term.