Quotidian Investments Monthly Commentary – March 2017
During March three significant events caught the attention of equity markets. The first of these was the well-heralded uplift in US interest rates announced by the Fereral Reserve following its mid-month meeting. As expected, this increase was of 0.25% and simply reflects the developing strength of the American economy as it continues to emerge from the dark days of the global financial crisis.
The important point to reiterate here is one we made in last month’s report. That is that the Federal Reserve tinkers with just short-term interest rates which, in the overall scheme of things, are relatively inconsequential. In terms of equity market performance the much more relevant rate of interest to watch is that on the 10 year US Treasury Bond. At the start of this year that yield stood at 2.45% and by 31stMarch it had fallen even further to 2.40%.
The dividend yield on the S&P 500 is a smidgen above 2% which, by comparison, makes investment in US equities a much more attractive proposition than watching the real value of one’s capital inexorably decline in bonds (Treasuries and gilts). Despite the element of risk inherent in stockmarket exposure, the shrewd element of the investing public has cottoned on that assertion. In our view, growth in corporate dividend payments coupled with capital appreciation in the medium and long term from a portfolio of well chosen equities is the best way forward.
Secondly, President Trump suffered his first major defeat when his attempt to repeal ‘Obamacare’ was rejected by the US legislature. It would seem that a number of his fellow Republicans voted against their Commander-in-Chief not because they thought Trump’s plan was too extreme but because it did not go far enough! Stockmarkets reacted badly and we endured four successive days of declining valuations.
The triggering of Brexit eventually took place on 29thMarch after a gestation period of 9 months (quaintly, the same average gestation period as the tortoise*). Article 50 was invoked by snail mail with a letter from Theresa May being hand delivered by our man in Brussels to one of the multiplicity of EU Presidents.
Whilst exit negotiations will, no doubt, be deliberately difficult and long-winded we believe that the final outcome will be of great benefit to the UK and its successful economic development. Simply emoving the extraordinary burden of piffling, unnecessary EU regulations will allow the British economy to escape from the constipation of petty bureaucracy and prosper.
On 31stMarch 2017 the FTSE 100 closed at 7322.92(a rise of+0.82% for the month and now stands at +2.52%. for the 2017 year to date). By comparison the Quotidian Fund’s valuation on the same date shows an increase for the month of March of +1.64%and for the 2017 year to date the Fund is now up+14.93%.
Despite the negative market reaction to Trump’s setback with Obamacare the Quotidian portfolio continued its upward momentum. The real engine for recent stockmarket growth in America has been the President’s promise of tax reform and we have little doubt that Trump will succeed in getting his restructuring of the US tax system passed by the House of Representatives and the Senate.
It is inherent in the character of stockmarkets that there will, no doubt, be a correction before this year is out. However, that will be a pause for reflection before another move higher.
It is worth noting that in the past 25 years there have been declines of more than 10% (and, on occasion, two or even three such declines) in each and every year. Nevertheless, in 17 out of those 25 years the market has still ended the calendar year in profit.
The Quotidian Fund comprises a core portfolio of high quality growth stocks and so we believe that we are well set to weather any short-term corrections.