Last month was a difficult month for global markets where the ‘October Effect’ was in full force. Simply put, the ‘’October Effect’’ is a theory that stocks tend to decline during the month of October. The events that have given October the reputation for stock losses have happened over decades, but they include, the Panic of 1907, Black Thursday, (1929), Black Monday (1929) and, another even darker Black Monday in 1987, where the Dow Jones Index plummeted 22.6% in a single day (19 October).
Fortunately, the markets didn’t decline by 22.6% this time, and whilst October 2018 can be labelled a bad month (MSCI ACWI -7.7% in USD), it certainly was not a record bad month.
In fact, the US market has bounced-back somewhat since the lows reached last month and is now at break-even year-to-date.
The underlying managers in the Fintax Funds have long been warning about the overvalued nature of the tech sector, in general. Given that some of the larger tech companies are now the largest constituents of global indices, the market was, therefore, due for a correction. The Fintax Funds’ underweight position in US tech stocks, in particular, have helped to limit their decline in performance (October: Fintax Intl Balanced – 5.2%, Fintax Intl. Growth -6.4% vs. MSCI ACWI: -7.7%). Some of the more popular tech stocks, that were not owned, but that sold-off sharply were:
| Stock | October Performance (USD) |
| Apple | -6.1% |
| Alphabet | -9.8% |
| -6.6% | |
| Tencent ADR | -16.6% |
| Alibaba ADR | -12.2% |
Whilst, there are many Rules of Thumb market participants use to describe market phenomena (‘’January Effect’’, ‘’Sell in May and Go Away’’, “Halloween Indicator’’, ‘’October Effect’’ etc.) there are a couple of teachings from astute investors that are more useful during these times of increased market volatility:
- The key to making money in stocks is not to get scared out of them – Peter Lynch
- Be fearful when others are greedy and greedy when others are fearful – Warren Buffett
- Time is your friend, impulse is your enemy – Jack Bogle
- If you have trouble imagining a 20% loss you shouldn’t be in stocks – Jack Bogle
- Time in the market beats timing the market – Ken Fisher
- 80% of returns are derived from 2% of the time in the market – Dave Foord
Whilst temporarily losing 6% in one month feels horrible, the Fintax Funds are managed to deliver good performance over the long-term, without taking on undue risk. By adhering to this strategy, short-term performance volatility can occur and should be expected. The Fintax Funds have continued beating the market, on a risk-adjusted basis, over longer timeframes. We are in regular communication with the London team that manages the Fintax Funds and maintain our high conviction in their capability to continue delivering longer-term outperformance for investors, in spite of shorter-term performance volatility.