All Posts By

Emily Keenan

Graduate Financial Planning Analyst

As one of Northern Ireland’s leading Financial Advisory Firms, Pacem is a boutique practice which offers a unique Financial Planning & Accountancy Business Advisory service. As a company we are people focused and we have a very close relationship with our clients. Our culture is that we want all team members to realise their potential and we provide this through mentoring and coaching. We promote employee well-being and a supportive team working ethos in line with company values and objectives.

We are now taking applications for our Graduate Financial Planning Analyst Role. The successful candidate will work with our Advisers and Paraplanning team to provide professional, efficient and compliant financial planning services to our clients. It is expected that you will be consistently accurate in your work, be able to work on your own initiative and maintain the high level of professionalism that our clients expect. Working within a small team will require you to be hands on in all areas so you will also be expected to answer telephone calls and deal directly with clients. The ability to communicate in a professional and knowledgeable manner, both written and oral, will be important.

Pacem is a multi-award-winning provider of coordinated business accounting and financial advice to business owners and successful professionals. Founded in 2017 and now employing 23 people, Pacem is one of NI’s fastest growing financial advisory firms with a strong focus on team development and wellbeing, evidenced by multiple ‘employer’, ‘best company to work for’ and ‘growth’ awards.

This is a unique opportunity for the right person to become a valued member of our team, gaining hands-on experience and growing their career alongside the business. For more information and to apply, please download the job specification below. For any queries, please contact our People & Talent Manager, Frances Neely on 028 9099 6948 or email frances.neely@pacem-advisory.com. Pacem is an equal opportunities employer. The closing date for this role is Friday 28th June 2024 at 12pm.

Download Job Specification here: Graduate Financial Planning Analyst

Politics and Portfolios

It feels like 2024 is the year of the election with over 64 happening in various countries around the world covering around 50% of the world’s population[1]!  These range from the farcical pretense of the re-election of Putin, to that in the UK.  At this time, it looks like a probable victory for the Labour party over the incumbent Conservatives, seemingly with a large majority.  In the previous election in 2019, British politics was polarised between Boris Johnson’s ‘getting Brexit done’ mantra and a very left-wing alternative of Jeremy Corbyn and his ‘magic money tree’. Today, the two main parties are vying for far more central ground that tends to win elections. Who said democracy does not work?

In India, the world’s largest democracy, the people have spoken and have put a dent in the BJP and Modi’s ambitions of an overwhelming 400 seats.  They gained just 240 instead, without a majority.  The EU Parliament elections are due to begin, with concerns over the growing impact of the far-right.  Throw in the US election chaos in November and investors might wonder how to process all of this in terms of what might happen to their portfolio.

Well, the good news is that the markets have done this already for you!  It is no doubt, for example, pricing in the probability of a Labour government and what it thinks about its policies, as far as they are known. That is what markets do.  They incorporate all public information into prices quickly and efficiently, meaning that prices only move on the release of new information, which is random.  The stock market tends to be pretty resilient for those with the patience to sit out any passing market storms.  It seems to be obligatory at these times to roll out a chart with the colours of the different parties indicating the periods they are in power – say in red for Labour and blue for Conservative – and showing the growth of the market.  It does not tell you much, apart from these events have little impact, as the market prices in events well before they happen.  So here it is.

Figure 1: The UK market’s growth of wealth over time, irrespective of who is in power.

Source: Albion Strategic Consulting. Data: CT FTSE All-Share Tracker 1 Inc (GB0008464199) from 01/10/1988, Vanguard FTSE UK All Shr Idx Unit Tr£Acc (GB00B3X7QG63) from 01/01/2010. Not a recommendation. Data in GBP in nominal terms. Election results data from House of Commons Library.

It really is pointless to try to predict an outcome any different to that already reflected in today’s market prices.  What is your thesis? How have you interpreted the information that you have to hand? How is your view different to everyone else who is thinking similar thoughts?  The reality is that is really hard to outguess the market view reflected in prices.

As you see from the figure above, these periods of political power are plotted against the UK market. But what does that tell you? Over 80% of the earnings of the UK market come from overseas, so how meaningful is it to just look at UK politics. Not only that, but the UK is likely to represent only a fraction of your global portfolio, as it only represents around 4% of total world market capitalisation.  So, you will need to factor in all 64 elections, all other world events known and as yet unknown and decide how to position your portfolio accordingly.

Alternatively, you could be patient, trust that the markets work pretty well and reflects the aggregate view of all investors and believe in the power of capitalism to deliver rewards due to you as the part owner of companies (equities) and as a lender (bonds).  We advise the latter approach.

The most important thing you can do is to vote.

 

Risk Warnings:

This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

[1] TIME (2023) The Ultimate Election Year: All the Elections Around the World in 2024. https://time.com/

Employee Spotlight: Crissie McConaghie

Every few weeks we will be spotlighting a member of the team so that you can get to know the people behind the Pacem brand. This week we feature our Senior Manager, Crissie McConaghie. With over 12 years of experience in the Accountancy and Banking industry, Crissie joined Pacem as a Senior Manager in September 2023. She completed her degree in Accountancy at Ulster University and has been a member of CAI since February 2017. She now works as part of our Accountancy & Tax team, supporting and advising clients in areas of business and tax advice.

Crissie tells us a bit more about herself below.

Employee name
Crissie McConaghie

Your role at Pacem
Chartered Accountant

How long have you been with Pacem?
9 Months

What does your day-to-day role entail?
A typical day in the office involves managing our client work within the team and engaging with clients with any queries they may have. The client work varies from VAT return preparation, payroll, CIS returns, accounts and tax return preparation, and general bookkeeping. Every day is different. I do meet with clients a lot which is either in person or online.

How would you describe yourself in three words?
Kind, Bubbly, and Hard-Working

Tell us something that might surprise us about you.
I competed in vintage ploughing competitions!

What do you like most about your job?
The Pacem team – everyone is so friendly and I felt part of the family from day one! I also enjoy being a part of our client’s business life journey.

If you won the lottery, what is the first thing you would do?
Take my family on a big holiday to Australia and New Zealand, with a stop in Disneyland Florida for my little girl Daisy.

Favourite Food
Any pasta dish, or anything on the Amicci Restaurant Portstewart menu for that matter (if you don’t know, get to know!) And a good Sunday Roast is always hard to beat!

Favourite Food
My husband is a farmer, so outside of work he always finds a job for me to do, whether it be delivering his dinner to the field or helping during lambing time, he will always find a job for me to keep me busy on the farm! I also enjoy long walks around the North Coast soaking up all the beautiful views it has to offer – Portballintrae being one of my favourite views.

Employee Spotlight: Seanin McGarry

Every week we will be spotlighting a member of the team so that you can get to know the people behind the Pacem brand. This week we feature our Planning Analyst Intern, Seanin McGarry. Seanin is currently studying Business Management at Queen’s University and completed a placement with ASM in Newry as part of her degree. Working as a part-time Planning Analyst, Seanin supports our Financial Planning team in meeting client’s needs.

Seanin tells us a bit more about herself below.

Employee name
Seanin McGarry

Your role at Pacem
Planning Analyst Intern

How long have you been with Pacem?
10 Months

What does your day-to-day role entail?
Normally, my day-to-day role is assisting in preparing reports and completing client work alongside our advisors. I prepare annual review reports and valuations for client meetings. I also process ad-hoc tasks that come up such as contributions or withdrawals within client portfolios.

How would you describe yourself in three words?
Ambitious, Genuine, and Reliable

Tell us something that might surprise us about you.
I love to cook. I enjoy learning and creating new recipes to try out.

What do you like most about your job?
I enjoy the variety of tasks each day. I am always learning something new which makes it interesting. I also enjoy working with the team at Pacem, everyone is friendly and always happy to help.

If you won the lottery, what is the first thing you would do?
I would take all my family on a nice holiday. I would also build my dream house and then open my own café or restaurant…the list is endless!

Favourite Food
Anything spicy really but probably Chinese food.

Where is the best place you’ve travelled to and why?
I visited Bali in the summer and it was definitely my favourite so far. We travelled around to Ubud, Gili Trawangan, Uluwatu and Canngu so I was able to experience a bit of everything. I loved the food, people, beaches, and obviously the weather!

What is something you learned in the last week?
My mum taught me how to put oil in my car – I have been driving for 5 years!

Employee Spotlight: Adam Martin

Every week we will be spotlighting a member of the team so that you can get to know the people behind the Pacem brand. This week we feature our Planning Analyst, Adam Martin. Adam is currently studying Economics at Ulster University and joined the Pacem team in May 2023 as part of our Internship Programme. He is now working as a full-time Planning Analyst, supporting our Financial Advisory team in achieving client’s financial goals.

Adam tells us a bit more about himself below.

Employee name
Adam Martin

Your role at Pacem
Planning Analyst Intern

How long have you been with Pacem?
Almost a year!

What does your day-to-day role entail?
My day-to-day generally consists of preparing annual review reports for our clients. I assist the team in preparing recommendation reports for new clients. There is also usually always a few ad hoc tasks during the week to complete.

How would you describe yourself in three words?
Ambitious, Motivated & Sociable.

Tell us something that might surprise us about you.
I’m a Manchester City fan! That is unsurprising to everyone in the office as I started when City won the Champions League.

What do you like most about your job?
I like the variety of my role – no day is the same! I am constantly learning new things and developing my skills.

If you won the lottery, what is the first thing you would do?
Ah the dream! I would share a lot of it with family and friends but first I would probably buy a house beside Galgorm Castle Golf Club where I spend most of my spare time. I would also probably buy a holiday home on the slopes as skiing is my favourite holiday.

What would you do (for a career) if you weren’t doing this?
I think I would more than likely be doing greenkeeping as it was my summer job and something I really enjoyed!

Favourite Film(s)
I love a good war film! I think 1917 or Hacksaw Ridge would be my favourite.

What interests/hobbies do you have outside of work?
I love sport. My main hobby is golf – I have a handicap of 4, although it was 2 a couple of months ago! My friends and I play 5 a side every Tuesday night which is a great way to catch up with everyone!

Financial Advisory Summer Internship

As one of Northern Ireland’s leading Financial Advisory Firms, Pacem is a boutique practice which offers a unique Financial Planning & Accountancy Business Advisory service. As a company we are people focused and we have a very close relationship with our clients. Our culture is that we want all team members to realise their potential and we provide this through mentoring and coaching. We promote employee well-being and a supportive team working ethos in line with company values and objectives.

We are now taking applications for our Financial Advisory Summer Internship Role. The successful candidate will work with our Advisers and Paraplanning team to provide professional, efficient and compliant financial planning services to our clients. It is expected that you will be consistently accurate in your work, be able to work on your own initiative and maintain the high level of professionalism that our clients expect. Working within a small team will require you to be hands on in all areas so you will also be expected to answer telephone calls and deal directly with clients. The ability to communicate in a professional and knowledgeable manner, both written and oral, will be important.

Pacem is a multi-award-winning provider of coordinated business accounting and financial advice to business owners and successful professionals. Founded in 2017 and now employing 23 people, Pacem is one of NI’s fastest growing financial advisory firms with a strong focus on team development and wellbeing, evidenced by multiple ‘employer’, ‘best company to work for’ and ‘growth’ awards.

This is a unique opportunity for the right person to gain hands-on experience alongside their university degree, with the potential extension into a Final Year Internship. For more information and to apply, please download the job specification below. For any queries, please contact our People & Talent Manager, Frances Neely on 028 9099 6948 or email frances.neely@pacem-advisory.com. Pacem is an equal opportunities employer.

Download Job Specification here: Financial Advisory Summer Internship

2024 – Looking Backwards and Forwards

Over the longer term, investors expect a positive, after inflation return from investing in company shares and lending money to governments and companies by owning bonds.  Unfortunately – and inescapably – in the shorter-term market returns are anything but predictable. They contain a lot of noise, as the market absorbs new information into prices.  High inflation in 2022 led to a rapid rise in interest rates around the world, contributing, in part, to the fall in global bond and equity prices. It was a painful backward step and a reminder that the road to long-term returns can be bumpy and painful at times. With these now higher yields, some investors may have been tempted to hold more cash but roll forward a year and that would have been a poor decision in the short term.  It is nearly always a bad decision in the long term for those with long investment horizons.  Fortunately, 2023 has delivered a much more positive story.

Looking Backwards

Last year all core assets delivered positive returns. The US market – and in particular the ‘Magnificent Seven’ as the press have dubbed the big tech firms – regained the losses they suffered in 2022.  In fact, they contributed around three quarters of the return of the US market over the year.  As a consequence, global developed market returns were very strong, given that the US weight in global markets is around 63%. Value companies underperformed in the US (largely because of the overwhelming impact of the ‘Magnificent Seven’) but made a strong contribution outside the US.  Both value and smaller companies outperformed strongly in emerging markets. Global commercial property (REITs) also managed a positive return.

On the defensive side of portfolios, high quality, short-dated bonds have recouped over half of the falls suffered in 2022 – largely on account of the higher bond yields, which caused the pain in 2022 – delivering returns similar to cash.

Figure 1: Global investment returns – 2022 and 2023 compared

Data: Funds used to represent asset classes, in GBP. See endnote for details.

Sensible, systematic portfolios comprising a diversified ‘growth’ basket of equities – with tilts to value and smaller companies – paired with ‘defensive’ short dated high-quality bonds will have delivered robust returns in 2023, somewhere in the region of 9% for a 60/40 split respectively in GBP terms[1]. Investors with portfolios denominated in GBP suffered a small currency drag over the year as Sterling appreciated against the US Dollar by around 4%, as well as most other major currencies.  Year-on-year inflation in the UK fell to 3.9% in November, down from 10.5% at the start of the year.

Looking at three-year cumulative returns helps to illustrate the benefit of remaining invested through tough years such as 2022. Bond returns have been poor due to starting yields around 0% at the start of the period followed by subsequent yield rises (and thus bond price falls), but these were more than compensated for by strong growth asset returns.

[1] Refer to table in the endnote for underlying funds and allocations.  This is provided for informational insight only and does not represent any form of advice or recommendation.

Figure 2: Cumulative global investment returns – three years to the end of 2023.

Data: Funds used to represent asset classes, in GBP. See endnote for details.

Looking Forwards

The outlook for the global economy looks a little bleak as major economies teeter on the brink of recession, including the UK.  China has deep and wide economic problems that are restraining its growth prospects.  Inflation has come down in the EU (2.4%), US (3.1%) and UK (3.9%) from recent double digit highs.  Risks remain – including conflict in the Middle East impacting energy and supply chains –and the final yards to reach central bank target levels of inflation (2% in the UK) will be harder to achieve and vulnerable to geopolitical risks.  Interest rates may well remain elevated relative to the low rates that investors experienced up until early 2022, which is good for bond holders.

It is useful to remember that forward-looking views are already reflected in today’s prices.  What comes next, no-one truly knows. The key is to remain highly diversified, resolute in the face of any market set-backs and focused on long-term goals.

And finally…

More broadly, Putin continues to wage his illegal and brutal war in Ukraine and the terrible humanitarian tragedy unfolding in Gaza seems to have no resolution in sight. Our thoughts are with all the innocent people caught up in these conflicts.

This year we face the prospect of elections in democracies such as the UK, US, Taiwan, India, Pakistan, Indonesia, and within the European Union.  US politics is as deeply partisan as it has ever been, raising the level of uncertainty about the future.  The democratic process is always combative, often messy and sometimes ugly.  Let us hope that these elections result in governments that fulfil Lincoln’s wish set out in his Gettysburg Address after the Battle of Gettysburg in 1863:

‘that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.’  

In the UK, it is certainly possible that the Conservatives will struggle to remain in government.  As Churchill once said:

‘Many forms of Government have been tried and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time.…’

Winston S Churchill, 11 November 1947 

On a brighter note, it is worth remembering that despite the conflicts in the world, seeming discourse in democratic nations and the rise of autocratic and despotic leaders, the world we live in is better in many respects than ever before.  While 659 million of the world’s population live in poverty, this is down from 1.9 billion in 1990 and 902 million in 2012[1].  Global under-5 mortality has dropped by 60%, 2.1 billion people have gained access to safe drinking water since 2000 and today 40% of board seats in FTSE 350 companies are held by women (10 years ago 150 or so of these companies had no women on their boards)[2].  These lesser known facts are a strongly positive counterbalance to the immediate troubles that the world faces.

From an investing perspective, we remain hopeful for the best in 2024 but remain prepared for the worst, as is always prudent.

Happy New Year!

[1] https://borgenproject.org/victories-fighting-poverty/

[2] Sunday Times magazine, December 31, 2023. ‘Really, actually, properly excellent things that happened in 2023’

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Data series used:

Asset class Fund ISIN Weight in P60/40
Gbl market Fidelity Index World P Acc GB00BJS8SJ34 27.5%
Gbl value Dimensional Global Value GBP Acc IE00B3NVPH21 9.2%
Gbl small cap Vanguard Glb Small-Cp Idx £ Acc IE00B3X1NT05 9.2%
EM iShares Emerging Mkts Eq Idx (UK) D Acc GB00B84DY642 4.9%
EM value Dimensional Emerging Mkts Val GBP Acc IE00B0HCGX34 1.6%
EM small cap iShares MSCI EM Small Cap ETF USD Dist IE00B3F81G20 1.6%
Gbl property L&G Global Real Estate Div Index I Acc GB00BYW7CN38 6.0%
Short, high qual bonds Dimensional Global Short Dated Bd Acc GB0033772848 36.0%
UK 1-5 gilts iShares UK Gilts 0-5yr ETF GBP Dist IE00B4WXJK79 0.0%
UK IL gilts Dimensional £InflLnkdIntermDurFI GBP Acc IE00B3PVQJ91 4.0%

More information is available on request.

A Tribute to the Wisdom of Charlie Munger

Charlie Munger, the lifetime business partner of Warren Buffett at Berkshire Hathaway, passed away in late November at the ripe old age of 99.  He was a deep thinker about business, who focused on the fundamental strengths of companies exhibiting a simplicity that he could understand.  Although he was less high profile than Warren Buffett, he is credited with changing Buffet’s approach of buying ‘fair companies at wonderful prices’ to buying ‘wonderful companies at fair prices’.

He and Buffett delivered investors with stellar returns of +10% above the S&P500 index (1964-2022) [1], although the past two decades have been far more challenging, delivering the return of the market.  He amassed great personal wealth through the investment returns of Berkshire Hathaway [2] – compounded over a long period of time – but gave the majority of it away to philanthropic works.   In tribute, we look at a number of his well-known quotes.

Make yourself into the person you want to be.

A key driver of his personal philosophy was deciding on the person you want to be and then making sure that you become that person.  He summed this up nicely as follows.

Early on, write your desired obituary — and then behave accordingly.

He was also focused on lifelong learning. He and Buffet both read voraciously every day and set aside time for thinking as opposed to doing.  His advice was to go to bed smarter than when you woke up.

His thoughts on investing

His take on investing was that it was a long-term game where you make your choices, have the courage of your convictions, stick with it through thick and thin, and reap the rewards of time and compounding, avoiding emotional and financial costs along the way. Sounds familiar!

A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.

(Charles T. Munger, Value Investing: A Value Investor’s Journey Through the Unknown.)

Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.

(Poor Charlie’s Almanack)

His reference to ‘getting it’ includes financial and emotional cost leakage, not least chasing returns and trying to time markets, instead of sticking to a well-thought-out strategy.

When he and Buffet began their relationship at Berkshire in the 1960s the investing world was very different, with many more retail investors and fewer sophisticated institutional investors.

There is so much money now in the hands of so many smart people all trying to outsmart one another. It’s a radically different world from the world we started in.

(2023 Berkshire Hathaway Annual Meeting)

The implication is that markets are probably more efficient, meaning that bargains are far rarer for active managers.  Berkshire’s size, and the greater efficiency of markets, has probably underpinned their more lackluster performance in the past two decades.

Even back in 1994, he saw that the investment management industry had become a factory churning out glistening products that appealed to the investment magpies, particularly faddish products designed to chase yesterday’s returns.

I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, ‘My God, they’re purple and green. Do fish really take these lures?’ And he said, ‘Mister, I don’t sell fish.’

(A Lesson on Elementary, Worldly Wisdom as It Relates To Investment Management & Business, 1994 speech at USC Business School)

Today, there are over three million (yes, that is correct!) indices available to investors and more equity mutual funds available than there are listed companies in the world.  This is the ‘idiocy’ to which he refers.  In reality, a sensible, systematic approach to investing requires only a handful of funds to capture market exposures and make evidence-based, long-term risk factor tilts.

One fundamental difference between Charlie Munger’s approach to investment and that of a systematic investor relates to diversification.

The worshipping at the altar of diversification, I think that is really crazy…I find it much easier to find four or five investments where I have a pretty reasonable chance of being right that they’re way above average. I think it’s much easier to find five than it is to find 100. I think the people who argue for all this diversification — by the way, I call it ‘diworsification’ — which I copied from somebody — and I’m way more comfortable owning two or three stocks which I think I know something about and where I think I have an advantage.

(2021 Daily Journal Annual Meeting [3])

At one level he is right.  Long-term market returns are driven by just a handful of stocks.  Research suggest that around 4% of US companies have driven all of the returns of the US market since 1926 [4].  At another level, for most investors he is probably not right, even if it was right for him.  The challenge for investors is picking these stocks.  Perhaps in a time when markets were less efficient and with two deep, investment obsessed investors working on the problem, then finding at least a few of these companies may have been possible.  But for the vast majority of investors, the only way they can guarantee to pick these winning firms is to own the entire market.  The cost of getting it wrong is too big to contemplate and few have the time, insight and fortitude to risk doing so.  As his partner Warren Buffett once said:

By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.

(Berkshire Hathaway shareholder letter 1993.)

Charlie Munger will be remembered as one of the great ‘active’ investors and a man of humility and integrity. People like him are few and far between.

Charlie Munger (1924-2023)

[1] https://www.berkshirehathaway.com/letters/2022ltr.pdf

[2] At the time of his death his shares in Berkshire Hathaway were worth US$2.6 billion but the records show that at one point he owned shares worth in excess of US$10 billion, sales of which have funded his philanthropic endeavours.

[3]      The newspaper publishing company he chaired from 1977 through 2022

[4]      Bessembinder, H. (2018) Do stocks outperform Treasury bills? Journal of Financial. Economics, vol. 129, no. 3, 440–457. https://doi.org/10.1016/J.JFINECO.2018.06.004

If you have any questions or queries about anything in relation to the nature of this blogpost, you can contact info@pacem-advisory.com.

Investment impact of the unfolding tragedy in the Middle East

Everyone has been touched by the horrific events and unfolding human tragedy in Israel and the Gaza Strip, and many are concerned by how this might escalate into a wider conflict at a time of great uncertainty in the world. People’s immediate focus is, rightly, on the plight of those caught up – either directly or indirectly – in the maelstrom of the conflict. We can only hope that some form of peaceful solution can be arrived at quickly, however hard or unlikely this may seem.

At such a time, it may feel a little inappropriate to be worried about the impact of ongoing events on investors and their portfolios.  Yet, with many people feeling a great degree of uncertainty about the geopolitical events around the world, the cost of living crisis, the state of politics in many countries, not least the UK and the US, providing some reassurance may be welcome.

In the days since the weekend’s tragic events, the Israeli stock market has fallen by around 7%, in part due to the fall in the Israeli currency (the shekel).  From a portfolio allocation perspective, the Israeli equity market (classified as a developed market) is only around 0.15%[1] of the world equity markets (developed and emerging markets combined).  As such, any direct impact from the Israeli stock market will be negligible in a well-diversified portfolio.  So far, other asset classes have not been materially affected. That is the easy part.

Figure 1:  Asset class returns from 06-10-2023 to 11-10-2023

Morningstar Direct © All rights reserved. See footnote for data uses[2]. In GBP terms.

The hard part is trying to evaluate what the possible geopolitical, economic and investment market scenarios are that lie ahead and the likelihood that they might occur.  At this point, the human mind (not least those of market commentators) tends to work overtime, trying to make sense of the vast interconnected nature of possible outcomes, by making up plausible stories.  These tend to be in the form of conditional probability narratives starting with ‘If A happens, then the impact on B could be material, which could lead to C falling’.  (In one possible scenario A = oil price rise, B = higher inflation, C = bond prices).  Worrying news headlines can ensue.  The question is, what can one do with such information? The truthful answer is not very much.

Fortunately, systematic investors with relatively long horizons can largely ignore these narratives and rely on the fact that they are all, in aggregate, already reflected in today’s market prices.  Unless an investor has better information (or uses information better than others) they should probably not try to outguess markets at a time like this and remain sensibly invested in their long-term strategy.

Things could end up worse than expected and equity markets might fall.  No-one knows.  There could be a flight to safe haven assets such as US Treasuries which would force yields down and bond prices up.  Again, no-one knows.  What investors with highly diversified portfolios do know, however, is that the countries, sectors and individual companies they own are many and varied and the bonds they hold are generally pretty defensive.  This broad diversification should see them through any investment storms that they might encounter, today or in the future, as it has done successfully over the decades. As the chart below shows, investors who remain invested should be rewarded over time.

Figure 2: Global equities and world events Aug 1998 to 11 Oct 2023

Data: Morningstar Direct © All rights reserved – Global equities – Vanguard Global Stock index $ Acc. In GBP

The key is not to make any emotionally driven decisions – perhaps influenced by media headlines or your own narratives – and to remain invested.  If necessary, get in touch with your adviser who will be happy to talk things through with you.

We hope for better times ahead for everyone.

Risk warnings

This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

If you have any questions or queries about anything in relation to the nature of this blogpost, you can contact info@pacem-advisory.com.

[1]     Based on its allocation in the iShares MSCI ACWI ETF USD Acc

[2]      Using product data as proxies: iShares MSCI Israel ETF, Vanguard FTSE Emerging Markets ETF, Vanguard FTSE Developed Markets ETF, iShares UK Gilts 0-5yr ETF GBP.  Other: Brent Crude – NYMEX: BZW00, US/GBP Yahoo! Finance.