Report on Q4 2015

Report on Q4 2015

5 Jan 2016

Following a very wobbly third quarter, we saw a nervous rally in Q4. As usual, the FTSE 250 (+4.5%) did better than the All Share (+3.5%) and the FTSE 100 (+3.1%). As a reminder, over ten years the 250 has performed more than ten times as well as the 100, yet index trackers continue to offer the 100 or the All Share (than which the 250 returned 5x over 10 years) as the default choice.

Quite by chance today I read this from Ross Clarke in the Spectator blog.

Jeremy Corbyn wants to get rid of the British Empire Medal and David Cameron wants to ditch the Human Rights Act. But I have a different nomination for the national institution most desperately in need of abolition: the FTSE 100 index. It is harming our economy by consistently underplaying the returns to be made on stock market investments and encouraging us all to invest in property instead.

Despite the first nudge higher in the Federal Reserve interest rate government bond markets were quiet. The 10 year Bund yield slipped fractionally from 0.61% to 0.58%. Ten year gilt yields nosed up from 1.8% to 1.9%. The weakness in commodity prices is making people nervous about global GDP growth and the next cycle of rising interest rates seems no closer than it did this time last year or this time the year before….

One of the features of Q4 was the relative scarcity of actual bad corporate news and the relative abundance of negative opinions. The latter seem to suit the spirit of the times. Stock market analysts invariably provide opinions for which there is a demand – don’t be hard on them, it’s the nature of what’s left of the job – and if investors wanted bullishness they would get it.

At the moment, anyone putting the view that China is going to be ok, that global demand will eventually underpin commodity prices and allow investment in production again, that middle-Eastern politics are ultimately pragmatic and that the effects of terrorism are statistically trivial would be accused of being naive, stupid or wilfully misleading. This is interesting because one would normally expect Cassandras prophesizing doom to be in the minority.

As it is, optimists are more likely to be thought insane. We should console ourselves with the thought that we are probably keeping dangerous complacency at arm’s length.

Back in September I said that four high-yielding shares were “probably cheap”. Vodafone is roughly the same price now as it was then and is probably still cheap. Sainsbury had a trading update that marginally confounded the depressives and is 10% higher. Centrica and Fenner have both continued to be battered by their perceived exposure to the oil price and in Fenner’s case also to the mining industry. Fenner reported final results in November and maintained its dividend (implied yield now 8.5%) but warned about continuing difficulties in the current financial year (to August 2016). Such is life when trying to buy cheap bombed out stocks. Fenner must be a geared play on recovery in the world economy but it is not a share for anyone with a tendency to fret.

In other news, in December Pimco hired Gordon Brown. What could possibly go wrong?

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