Individual instincts hold key to investing

Opportunities are out there, but complex global conditions call for a cautious approach. David Lee reports on the discussions at The Scotsman’s market conference

Investors were urged to follow their own instincts rather than the herd in a market likely to become more volatile throughout this year. Delegates at The Scotsman’s annual investment conference – Home or Overseas: Where to from here? – were reassured that there are excellent opportunities out there, but warned to take a cautious approach.

Caspar Rock, chief investment officer at Cazenove Capital, said investors had to be agile and ready to re-shape their portfolios quickly against a challenging global backdrop.

“Sentiment worries me,” Rock said.

“Many multi-asset commentators from Wall Street and the City of London are bullish on equity markets.

“There is a chorus of consensus. If everyone is bullish, take a more circumspect view.”

He described Cazenove’s business cycle investment approach, which advises an active allocation of assets depending on the stage of the business cycle – slowdown, recession, recovery or expansion.

Cazenove’s latest “cycle positioning” has the United States, Japan and the Eurozone in expansion mode, with the UK in slowdown.

“The UK has gone from being one of the best-performing economies between 2013 to 2016 to the worstperforming economy in the G7,” said Rock.

“It is over-leveraged, has weaker retail sales and its disposable income is not growing as fast as elsewhere.”

Despite some positive, but unexciting signs, Rock described the UK economy as “a reluctant participant in the global recovery” and said Brexit uncertainty had definitely affected confidence.

Rock said we should expect greater market volatility in this year and thought central banks across the world would follow the lead of the Federal Reserve in the US and reduce their balance sheets.

He was, however, optimistic about growth in the US and the prospects for US equities (as opposed to his gloomier outlook for UK equities), although he said the potential for US growth was offset by high valuations.

However, there were certainly pockets of value to be found, said Rock – and “cash is not a bad place to be”.

He concluded with a cautious message, saying that an increasingly leveraged global economy, shaky credit ratings and the growing number of zombie companies meant it was prudent for investors to remain fleet of foot and “dance nearer to the door”.

Russ Mould of AJ Bell also had a cautious message, quoting the Roman Stoic philosopher Seneca: “I don’t know what’s going to happen, but I do know what’s capable of happening – and none of this will give rise to protestation on my part. I’m ready for everything.”

The broad-ranging “cockroach” portfolio, designed to be “ready for everything” and impervious to all manner of shocks and unexpected attacks, has only had four negative years since it was devised in 1991, said Mould.

On such a multi-pot approach to investing, he said: “At any time, you will feel profoundly uncomfortable having at least one of these assets in your portfolio.

“However, investments which make you feel uncomfortable are often the best ones.”

Mould had earlier noted that all market analysts were “in the probabilities business” and warned against predicting the future by extrapolating what had gone before.

He also warned against the “euphoric” pursuit of the latest market darling, highlighting the parabolic swing of Bitcoin as a salutary lesson to us all.

Mould shared a list of 10 market metrics, which he felt were a good benchmark for investment.

However, he accepted that while some of them currently looked strong – market breadth, strong transport performance, no move to defensives, and positive earnings revisions – at least three were looking problematic; investor confidence is not high, credit spreads are not low and “Dr Copper” (a metals market mainstay) looks a little poorly.

However, Mould thought the ten metrics were still strong broad rules for keeping a portfolio prepared for anything.

Margaret Lawson of SVM Asset Management had a more positive outlook, but warned investors away from traditional stocks that appear to offer good value.

“They look cheap, but are they really cheap?” she asked, highlighting the decline of many businesses and sectors that had