2018 has been a tough year for investors across all major equity indices.
Year-to-date up to 30/11/2018 the MSCI All Countries World Index (ACWI)is down 2.30%.
During these bouts of volatility, a common topic for debate has typically been that a switch out of equities into a “safe haven” asset class, such as gold, silver or cash and up until recently, even bitcoin! is warranted. It is not difficult to see why this discussion has reared its opportune head.
Since the start of September 2018, global equity markets (including the US market – the major driver of returns over the past couple of years) have all experienced steep declines.
As per the graph is is clear from the performance of the two major US equity indices: S&P500 and the Dow Jones Industrial Average versus the US dollar gold and silver price since 1 September 2018. With 20/20 hindsight, over the past three months it can be argued that it would have been the correct strategy to have completely switched out of equities and into traditional ‘’safe haven’’ assets such as gold, silver or cash.
Whilst we are cognizant of short-term performance and the volatility that may result, we recognize that short-term underperformance may start feeding into long-term performance. It is during these bouts of volatility that it is worthwhile to evaluate one’s investment positioning by asking:
– are there fundamental changes to the investment thesis of a current holding?
– has the quality of the investment manager deteriorated?
– is there any worthwhile reason not to remain invested?
The Fintax Funds have always been managed to generate good long-term performance, on a risk-adjusted basis. This simply means that the funds are not managed to deliver outsized returns across all market conditions and periods of performance measurement. Importantly, they do not take on undue risk in pursuit of temporary outsized gains. It is normal for equity markets and investment funds to experience these periods of underperformance as investor sentiment sways from greed to fear in the short-term-term and from irrationality to rationality over longer periods.
Our independent London advisory team carefully evaluates all the underlying holdings in the funds regularly and review these during our monthly calls. They have affirmed their conviction in each chosen position. When we, therefore, look at the same asset class constituents (S&P500 Index, DJIA Index, gold, silver) but over a longer, more meaningful measurement period (10 years) we find that it is the equity indices that have significantly outperformed the traditional ‘’safe haven’’ assets in spite of the former’s recent declines.
Importantly, in order to have realized these performance numbers, one would have to have been invested over this timeframe and have gone through the significant bouts of volatility experienced along the way.
Clearly, timing the markets would have been exceedingly difficult, for example switching out of silver at the top in 2011 and into a relatively cheap equity market, over the corresponding period. A far better strategy than consistently correctly timing the market would, therefore, be to invest with a good quality manager that manages one’s investment risk during these bouts of volatility. This provides a layer of risk management to an asset class that has clearly outperformed other asset classes over meaningful measurement periods. The Fintax Funds also have the luxury of holding suitable weightings of asset classes other than equities, should the risk/return profile of that holding warrant its inclusion.
Despite experiencing a bout of underperformance this year, the Fintax Funds have delivered long-term performance in line with the global markets, but with significantly lower volatility. In essence, managing your risk during these bouts of market volatility. We expect them to continue doing so for the foreseeable future.