I have penned these regular updates since 2005. Over that period I have written about the strangeness of the summer period in the markets at least 3 times, so apologies if you feel you’ve heard this before! Like the Shirley Bassey songs says, it’s all just a little case of history repeating… This June to mid-September was a little strange, once again.
The summer is renowned for light trading volumes and very little corporate activity. As a result, the wise old heads of investing famously say “sell in May and return on St. Leger day”. There is little fodder for the markets and they often trade sideways or even a little negatively as interest in making big investment decisions wains.
Such has been the case over this most recent holiday period. The English St. Leger horse race (which took place last Saturday) marks the return to action for many investors, as it falls at a time when businesses and investors are ramping up again.
Below is a fairly instructive chart. We look at the world equity index in Euro terms, along with two balanced investment funds, Irish Life’s Consensus Fund and Standard Life’s MyFolio Active 3 Fund (both have an allocation of over 50% to equities). These three indicators are clearly subdued since the end of May, up to when the St Leger went under starters orders (marginally negative by between 0% and 2%).
Let’s turn now to the longer run picture. We are some 10 years on since that famous summer of 2007 when the world stock market made a u-turn, along with the Irish and other property markets. It was like someone calling the cops to a U.S house party. Disbelief prevailed, coupled with revelers slinking away as the lights were turned on in a beer can and cigarette strewn room.
As you can see from the chart below, the world stock market is well past its previous high in 2007, but the Irish commercial property market (using 2 of the large funds as indicators) is somewhere around the 2007 peak, on average.
Some might think that on this basis, all money should move from equities to property now to get that bit more value. However, it’s not as simple as that. The markets don’t care about the past and of course there are far more options for you to consider for your money than just a global equities index or a property fund. Valuation is usually a function of the income an asset generates and with this in mind, Irish commercial property has the edge, but only a small one.
At this point of the cycle City Life’s approach is the same as always for investors who have a reasonable time frame. Diversify in line with your risk tolerance. Perhaps make a small allocation to a temporary, tactical investment. And if you want to invest largely in equities, for longer term gain, drip feed your money into the market (particularly at times of relatively high valuation).
It is the time for common sense to prevail as we make decisions with portfolios. Looking back on our experience of the 2007 period (a great market run but where easy money started to become hard to make), we will soon see niche product providers emerge at our door with all sorts of weird and wonderful investment ideas trying to target retail investors. We will advocate sticking to the knitting and focusing on tried and tested areas of expertise however, so the message will stay the same I’m afraid. Yawn. Getting. Shleepy. Snore.
City Life has been in business 46 years at this stage and having a bit of experience on your side can help when navigating periods where the future is unclear. After all, it’s all just a little bit of history repeating.
Managing Director, City Life