The James & George Collie Financial Management Q3 Model Portfolio Commentary
The James & George Collie Financial Management Q3 Model Portfolio Commentary06 March 2019 Written by James & George Collie

Prices-RisingThe events of the last few weeks have been traumatic for equity markets around the world. Fears regarding China and slumping commodity prices have combined with a strengthening Dollar to push share prices down across the Globe, with the economies of the emerging markets and Asia especially badly hit.

However, the subsequent rally and stabilisation, at least in the established “first world” economic areas, shows that sentiment rather than fundamentals were perhaps behind the severity of this correction in the market. This is not to say that we are set fair for a smooth ride, there are still a lot of factors in play that will create volatility in the near future, but the fact that the markets could cope with the slump without any panic measures being implemented should be seen as a positive sign for the future.

In our last commentary we suggested that the super cycle in bonds may have ended and despite the problems within Greece, UK Government bonds had not exceeded their peak value achieved on the 30th January this year. During previous periods of Euro crisis, safe haven bonds (UK, Germany in particular) have increased in value strongly, yet at the closest point yet to a Greek exit combined with European quantitative easing (QE) at 60Bn Euros per month driving demand, this did not occur, leading us to believe that the direction of this market had now reversed. We still feel this is the case in the medium term despite the short term flight back to bonds precipitated by the recent slump.

The first interest rate increases for a decade in the US is getting closer, although recent events may push this back into early 2016. However, this will mark the end of emergency interest rates. The impact of this rate rise is negligible in economic terms but significant psychologically as it marks a turn in the post credit crisis interest rate cycle. Market commentators expect future interest rate increases to be subdued, with rates likely to be around 1% at the end of 2016.

As mentioned earlier, Bond markets have previously shown some signs of decline and interest rate increases may accelerate this trend. This will push capital out of these markets and potentially unlock some of the QE potential which has not yet been realised. The effect could be that initial interest rate cuts provide more of a stimulus rather than a brake to economic growth. In this case the interest rate cycle is likely to steepen beyond current expectations, causing poor returns in sectors sensitive to the cost of capital including property, which has been a ‘darling’ asset class in recent months.

European equities are still good value compared to their US counterparts and this bodes well for short term performance, now that the immediate problems regarding Greece have been deferred. The longer term structural problems suggest that short term crises are going to come and go until Europe eventually achieves a full union or ultimately the Euro loses members. This benefit of a full union can be seen in the performance of the US economy, an education of a generation is needed for national agendas to be dropped in favour of a European agenda, but this may not be possible.

The poor performance of Asia and Emerging Markets has been disappointing over this period, as these markets were already considerably lower value than Global markets generally, and have underperformed since October 2010, by well over 35% in Sterling terms. There are continued concerns with regard to the slowing of the Chinese economy, the perceived asset bubbles in Chinese mainland stocks (less of an issue now) and the strengthening Dollar, which are all negative contributors to the region.

It is easy to see why these markets are unfashionable at present and represent a small and dwindling proportion of investor portfolios and indices. Nevertheless the arguments for exposure remain strong especially on a longer terms basis and the current unpopularity is also contributing to the low valuation. Investors are shying away from quality companies in higher growth markets whilst often preferring to hold overvalued growth companies in the US, or Bonds in Germany yielding negative rates.

Asian and Emerging markets have been steadily increasing their economic strength for years, which is supported by strong demographics, whilst their investment value has deteriorated significantly. These two trends should not be opposed to each other for long periods. Some of the significant headwinds such as Dollar strength and Chinese slowing growth are medium term factors; however the commodity cycle seems near a bottom, especially if economic growth globally, remains positive. Consequently this does not seem the right time to further reduce exposure to these markets for higher risk investors.


This quarter has provided further evidence that a new cycle has begun and we do expect fixed interest assets to underperform equity markets in this new cycle. As we have seen, increased levels of volatility remain inevitable and this is often associated with a change in investment cycles.

The JGC Model Portfolios are already well positioned for the new cycle, although some small changes have been introduced this quarter to reflect this position or replace underperforming funds.

We believe there are now a lot of growth prospects in equity markets but have maintained a bias towards funds with a focus on value rather than growth. Asia and Emerging Markets remain favoured for high risk, longer term investors.

If you are interested in learning more about the JGC Model Portfolios, or want to undertake a wider review of your investment strategies, please do not hesitate to contact our Chartered Financial Planner, Scott Middleton, to arrange a free initial meeting via email This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone 01224 581581.

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