Covering the Blind Side!
Stock markets over the world had a torrid and volatile start to 2016. Most indices have finished down circa 8% on the month.
During the month, stocks fluctuated wildly. Investors panicked when oil went below $30, only to panic again when it went through $35. Stock markets remain fragile psychologically.
Fears also persisted about Chinese growth, and then world growth. Concerns about potential US interest rate hikes, the threat of deflation and our old favourite valuations also added to the list. As the list got bigger the patient became more frenzied. The truth is, monetary conditions have tightened and that at the expense of repeating ourselves when Central Banks start to take away the punchbowl, the patient gets very irritated. The removal of stimulus around the world will have to be slow and arduous.
At the end of the first quarter in 2015, we reduced our equity content in the Appian Value Fund to 35% down from 42%, edging nearer the bottom of our range. It became apparent to us that some equities were priced to perfection. At the time of writing, the equity portfolio within the Appian Value Fund pays us 4% income from a group of companies with little or no borrowing.
Many believe the recent instalment of volatility has been caused by the policy makers, who when dealing with the crisis of the last 20 years have added fuel to the fire by reflating new bubbles. Cognisant of this volatility, we will always hold a decent portion of cash so that we do not have to rely on the kindness of strangers, when it comes to purchasing opportunities when they arise. Opportunities are now arising in sectors such as oil, mining and pharmaceuticals for those with cash.
Elsewhere our property income is expected to be above 5%, our forestry income 4% and our infrastructure plays have started strongly this year. However, we believe more volatility will persist and we cannot rule out further market weakness. So although the Appian Value Fund is down 1.9% in January, other income streams will start to come into play over 2016.