It’s been difficult to avoid global news in 2019. The ominous trade war between the United States and China… the confusing debacle that is Brexit… continued unrest in the Middle East… it definitely feels like there is a lot of uncertainty.
We spoke with Graeme Quinlan, Senior Adviser and head of the First Financial investment committee, about current international events and how First Financial is navigating this challenging time.
Nervousness in the market
With a 24-hour news cycle constantly reporting on any small shift in tariffs, a disruption of commodity supply or even a late-night political tweet, it’s not surprising that financial markets are fluctuating. Trump’s August announcement that the US would impose 10% tariffs on US$300 billion of Chinese goods sparked a slide in global equities. Graeme says,
“At the moment there is a lot of noise around the US-China trade war and the unresolved Brexit situation. It has created some nervousness in markets, and I think we are entering a period where we might see a bit of volatility.
The question is… how long will it go on for? And what is the collateral damage?”
When volatility hits, it is important to remember the fundamentals of investing.
Maintaining your long-term investment focus means you should be able to weather the short-term ups and downs. Graeme explains,
“We are starting to see GDP slow down. We are starting to see disruption in supply chains… but we know, on balance over time, most of these geo-political events tend to wash through.
We have methods to safeguard portfolios and protect against risk if there is a downturn… although in the growth part of portfolios we should expect markets to have a negative cycle once every four or five years.
Certainly, we expect some volatility in the coming years… but the assurance you should take out of that is that the risk management has been built into our portfolios.”
While you may feel the need to change your investment strategy, Graeme doesn’t recommend making drastic decisions. It may be tempting to sell growth assets, but at times of volatility it is particularly important to stick to your plan, particularly as cash rates are currently so low.
“Retreating to cash is a very expensive form of insurance… you are going to go back to 1% rates… we think there are better ways to manage risk.”
Intrinsic to everything we do at First Financial is our unique investment philosophy. It is based on a client’s cashflow needs and is essentially designed to help withstand most market fluctuations. As Graeme says, volatility is expected from time to time in the growth part of the portfolio, but we structure portfolios with sufficient defensive investments so that growth assets don’t need to be sold at inopportune times. This means there is no need to try to predict the exact timing of market turning points. Graeme expands by saying,
“Even though the structure is sound, there are still things we are doing within the asset allocation framework. We acknowledge that our long-range forecasts for most risk assets are still okay, with the exception of the US equity market… which we are steering away from.
Fixed income, or fixed interest that carries interest rate sensitivity, is another area that we feel the risks or pay-offs are not justified.
We believe we have a robust overall process that should cater for all markets and we use the information that we think is reliable to tilt the portfolios in certain ways.”
Investment committee information
Our investment committee is the primary source of our global market information. The committee maintains our investment policy and supports our team of advisers. Graeme says,
“If you have any concerns, my number one tip is to speak to your adviser. Your adviser is getting all the information first-hand from our investment committee, which is our central source of information.
We have two external consultants who sit on the committee, who give us an expert and impartial view of the world. That’s our forum to distil all the information and apply it to portfolios, and advisers are always at the forefront of that info.