For immediate release: 4th April
Standing Back
Rowan Dartington Signature’s Guy Stephens on why investors should recognise the long-term
attractions of equity markets despite the current volatility
The barrage of media reporting that is available nowadays can quickly overwhelm the investor into a
sense of panic and hysteria if not put into context. As the EU Referendum rumbles on, that is causing
consternation with many investors who prefer the safety of cash for the time being. In addition, the
media lurch from one scandal to the next with this week’s big story being the leaking of tax haven
client information. It does appear that the whole world is corrupt these days and the poor old
investor has to be very careful who he trusts and what he does with his hard earned cash.
It is very easy to become consumed with fear and remain in cash but this confuses what an
investment portfolio is composed of. It is not a collection of options dependant on the outcome of
the Brexit vote, nor is it a portfolio of securities dependent on the extent of the Chinese economic
slowdown, the outcome of the Port Talbot steelworks negotiations, the level of the oil price or when
and if the US raises interest rates. However, the private investor could be forgiven for thinking so as
these negative stories have been dominating the news for some time now.
There are usually four main asset classes in a portfolio; equities, bonds, alternatives and cash. All of
the equities are connected to underlying businesses which are affected by the big macro picture to
some extent but are held for reasons of their profitability, cash-flow, dividend and balance sheet,
and the underlying growth potential and quality of their business model. The same follows for
overseas equity collective funds where the fund manager conducts research into his company
universe and selects those he feels have the best potential for future success whether that be profits
or dividend growth.
Considering the robust economic growth in the US and the UK and sluggish but positive in Europe,
with the consumer enriched through low fuel prices, all is not necessarily as dire as the newswires
may have us think. In the UK, the private investor tends to follow the FTSE-100 which has failed to
advance beyond 7,000 ever since the end of the millennium and currently sits around 11% below
this level, having dipped to a level over 20% below during February. A focus on the negative
environment as reported in the news affects private investors and leads them to look at alternatives
such as property which has provided inferior returns and exhibits considerably lower liquidity. The
equity market may be more volatile but if held over the long term, with income reinvested, it
outperforms all mainstream asset classes.
To put this in context, without income reinvested, the FTSE-100 is around 11% lower than the peak
of 6,930 reached on 31 December 1999 in capital terms. However, with income reinvested, it is over
70% higher. Investors often find this incredulous or fail completely to appreciate the power of
compounding with respect to dividend income over time. This is all the more relevant when we
consider that the FTSE-100 has actually been one of the poorer performing equity markets in which
we can invest.
The more dynamic areas of the FTSE-250 have risen three fold since the millennium, the currently
unloved Emerging Markets by 2.75 times, Asia-Pacific using the Hang Seng index as a proxy by 1.5
times and the UK Small Cap and S&P 500 have doubled, rising by 110%. Even the relative basket
cases of Europe and Japan are up by 68% and 25% respectively. So, it is vitally important when
seeking investment opportunities to recognise the long-term attractions of equity markets without
getting overwhelmed with all the barrage of negative stories and remaining in cash.
Of course, it is very important that a coherent investment strategy is employed to exploit these
opportunities outside of the headline indices and this is where a professional investment manager
comes in. Our philosophy at Rowan Dartington is one of not taking any more risk than clients need
to in order to generate the returns that they require. Returns relative to an index benchmark are
okay up to a point, but the most important benchmarks are the goals of the client whether that is a
secure and growing income, a steady accumulation of capital, or a mixture of the two.
Standing back from the negative news flow and focusing on the fundamentals can provide a much
needed reality check before the madness of crowd hysteria takes over.
For further information, please contact us on 0117 927 7273 or visit us at www.rdsignature.co.uk.
Kind regards
Guy Stephens
Managing Director
Rowan Dartington Signature
This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by a
Rowan Dartington Signature representative at the time of preparation and should not be interpreted as investment advice. You should
seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of
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