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Sipp Investor: I'm moving into eurozone equities
Robert Kyprianou looks back on a tough third quarter and explains why he's moving into equities in emerging markets and the eurozone.
Robert Kyprianou looks back on a punishing third quarter and explains why he's moving into equities in emerging markets and, perhaps surprisingly, the eurozone.
Good riddance to a bad quarter
When I review the recently ended third quarter I am reminded of a quote from the musical The Music Man: 'Where is the good in goodbye?'
I doubt that I am alone in saying good riddance to the third quarter of 2011. Not only was it the worst quarter for global equity markets since the 2008 post-Lehman collapse, but there were few other asset classes where investors could hide.
Former safe havens such as gold and the Swiss franc proved to be anything but safe during the quarter, seeing sharp pull-backs from elevated levels. Previously rewarding alternative investments such as commodities and corporate bonds showed us that they were not immune to the spreading global economic slowdown.
Only investors in government bonds in a few Western markets – especially 30-year US treasuries – will look fondly back on the quarter.
As a result of all this my Sipp (self-invested personal pension) portfolio lost 9.8% of its value over the quarter – ouch!
Reasons to be cheerful
In absolute terms this was the worst quarter for my Sipp on record – far worse than the fourth quarter of 2008. So, am I angry or depressed, or maybe both? Actually no. I am (perhaps surprisingly) quite calm. How can this be? On self examination I have come up with three reasons:
One: beating the benchmark
First off, my portfolio might be down by nearly 10%, but the benchmark I use to measure my added value was down by more: 12.5% to be precise. It may be difficult to appreciate this, but unless my benchmark has been mis-specified as a fair reflection of my long-term liabilities then – in the long run – this is what really counts when judging performance.
Put another way, it's no good if your assets have risen by, say, 10% if your future liabilities, which your assets will eventually have to meet, have risen by 20% at the same time.
Two: opportunities abound
My second reason to be cheerful is that, as the best investors will attest, times of severe and broad market dislocation are rich in opportunity. I do not believe in the long-term deflation implied by long-term government bond yields in the US, the UK and the core eurozone markets.
Global slowdown and policy paralysis are certainly negative factors, but when looking at the relative value of government bonds and domestic equities in major Western developed countries, it is important to recognise that the new and maybe only triple-A institutions are blue-chips companies. So why are so many of their shares yielding more than their respective, acutely indebted, government’s bonds?
And let’s not forget the new global locomotives – the large, lowly indebted, highly competitive and voraciously consuming emerging economies in Asia and Latin America. Why have their equity markets fallen even further this year than many of those troubled, leveraged, busted developed economies?
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