Chapters Financial Investment Committee / The US Economy

Each client and enquirer has a different view and approach to investment. They are all different and this is only natural.

Many retail advisory propositions also have different views on the way funds in whatever format (Pensions, Investments, ISA’s as examples) should be invested, some preferring passive investment over more actively managed planning.

Over the last 9+ years, Chapters Financial has always preferred an actively managed approach to investment. We believe this adds greater value to our client proposition. Past performance is not a guarantee of future performance.

To further this active investment strategy approach to investments, Chapters Financial Limited maintains and updates a regular view of the investment markets. We obviously have our own opinions (if you know the team at Chapters Financial you will know that they are not a shy group!), and add to our robust procedures by consulting with an independent specialist, Steven Williams, Director at Cormorant Capital Strategies Limited on a quarterly basis.

More detail on the work of Cormorant Capital Strategies Limited can be found here: http://www.cormorantcapitalstrategies.com/
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At our last Investment Committee Meeting in January 2014, we considered many investment areas. As an example, we looked at the US sector and I have received additional feedback and comment from Steven Williams, which is detailed below:

There is a good chance that 2014 will be the year that the US economy escapes the mire that has characterised the last five years or so. Certainly the conditions for continued progress are in place.

The US job market is strengthening. The unemployment rate stands at 7.0%, nowhere near the sub-5% pre-crisis levels but much improved on the 10% rate in 2009. With non-farm payrolls increasing at a rate close to 200,000 per month, further improvements in the employment situation ought to follow. In addition, the necessary process of deleveraging is maturing. US banks can boast of greater than average rates of tier-1 capital, non-financial corporate profit margins have seldom been wider and, according to Moody’s economy.com, the ‘average share of after-tax income that households must devote to servicing debt is as low as it has been since 1980’. Furthermore, consumer confidence – which suffered a knock during the government shut-down - has rebounded. It seems consumers are cognisant of improving conditions now and expectant of continued improvement to come. Of course, the outlook is not without risks to the downside.

I count three major risks to the outlook for the US economy. The first, and most dangerous, is that of exogenous shock – a genuine surprise. The only insight I can offer into such an event is that they occur more frequently than most investors expect and that at this time the US, in common with other regional economies, is remarkably vulnerable. On the other hand, most investors are wearily familiar with the second and third risks on my list. 2014, just like 2013, will be characterised by the political battle for control of the budget, including more wrangling over the debt ceiling. Finally, the Federal Reserve will be keen to continue to taper its present stimulus package and a disorderly exit has the potential to upset financial markets across the globe (investors in emerging market economies beware).

But, for all of this analysis, investors ought to be aware that asset prices and the wider economy do not move in lock-step. Whilst there is, I think, an absence of compelling evidence to suggest that equity markets are significantly over-priced there is equally a lack of evidence to suggest the counter.

Steven Williams, Director at Cormorant Capital Strategies Limited

No individual advice has been given in the course of this blog. Past performance is no guarantee of future performance. Investment values can fall as well as rise and are not guaranteed.

If you would like to discuss the investment opportunities with regards to your own individual situation and circumstances or any aspects of financial planning, both personal and business (SME), then please contact the team, either in Guildford or Woking.

Keith Churchouse FPFS
Chartered Financial Planner
ISO22222 Certified Financial Planner

Chapters Financial Limited 

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