Firstly Happy New
Year to all our clients and readers! We hope that you had an enjoyable
Christmas break. This is our first post for a couple of weeks due to the
holiday; but we have not been idle!
We will shortly be
providing a review of 2014 and outlook for the coming Year prior to this we
thought that it would do no harm to highlight some of the key indicators that
we use to help us with our investment recommendations.
We remain very close to all time highs for the UK Equity Market based on the FTSE-100.
The FTSE-100
continues to fluctuate, showing a disturbing level of short term volatility.
Overall our risk system
peaked in 2014 and is now declining - we would expect the FTSE-100 to follow as
it has previously; it remains unclear whether any decline would be
relatively short lived as in 2011 and 2012 or more substantial as in 2000 and
2008.
Some of the indicators that
make up the above graph continue to make us cautious in our outlook - the first
shows how the correlation of the FTSE-100 with its medium and small cap
counterparts is falling away (again repeating previous history).
As you know we like to look
at where we are in relation to history the graph below shows the distance of
the FTSE-100 to its five year high, currently it is within 10% of its five year
high and history again shows us this does not typically result in positive long
term gains – the red graph shows subsequent 5 year returns from each point;
since the turn of the Millenium when the index has been within
10% of its 5 year high future returns have been negative (the returns are
annualised so investing in 1999 resulted in investors receiving -9% per annum
for 5 years which equates to a loss of almost -54%).
Current conditions continue
to make us extremely cautious!
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