The performance of our portfolios since the beginning of 2022 has been disappointing, this will not come as news to anyone who monitors their investments on a regular basis. However, in drawing any conclusions about this, it is important to remember that our investments are all made into the same markets as everyone else, this means that unless you are the Ponzi King, Bernie Madoff (there is a fabulous documentary about Madoff on Netflix), everyone else is facing the same difficulties.
These headwinds are well documented, War in Ukraine, a cost-of-living crisis, rampant inflation and aggressive monetary tightening by central banks – trust me, it is hard to perform well against this backdrop.
Evidence of this can be seen below:
The Vantage Earth Portfolios run by our Discretionary Manager EBI, have not performed well BUT they have outperformed similar portfolios run by one of the most respected investment managers in the world, Vanguard. I have chosen Vanguard as a comparator simply because they risk rate their portfolios in the same way as EBI.
EBI have achieved this relative outperformance by focussing on various additional factors, including small tilts to emerging markets, small caps, global short-dated bonds, and high profit companies. AND this outperformance has been achieved with EBI’s focus on Environmental, Social and Governance (ESG) issues.
The only market that has performed surprisingly well over the last year or so, is the UK, but this is not typical. For many years the FTSE 100, the index of the largest 100 companies in the UK, has lagged the indices that track US and global markets, but this year, the extraordinary profits made by Oil and Gas titans have bolstered the UK’s performance. For this outperformance by the UK to continue indefinitely, we would have to believe that the future (partially) lies in the world of fossil fuels, and I think we can all agree, that seems unlikely. Let’s all hope that the conditions that have allowed these companies to do well, namely the war in Ukraine, do not last too much longer.
The following chart shows how the FTSE 100 has significantly outperformed the MSCI World Index (which most closely matches the diverse nature of the equity content of the EBI portfolios) and the S&P 500, the main US Index.
Now let’s look at the last 5 years, including the period of outperformance by the UK since 1st Jan 2022.
Even with this recent period of outperformance by the UK, the FTSE 100 still lags way behind global equity markets when we look at a more extended time period, and this is why the EBI portfolios are globally diversified, and not overweight in the UK.
Over 20 years the picture is even more stark.
Despite this recent period of disappointing performance, there is no evidence that would support a change in approach by Clearwater or EBI, as always, patience is the key!
I hope you have found this missive of interest and maybe reassurance but, if you have any questions about this piece or any other finance related matter, please do not hesitate to get in touch.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
