Mid-Year Outlook 2018
In my last review, I noted that there were signs of complacency with regards to investor attitude to risk, with symptoms of excess in cryptocurrency get-rich-quick schemes and the investor infatuation with technology stocks which were considered to have bullet-proof prospects. The cryptocurrencies, such as Bitcoin, boomed further (it was the topic of conversation over Christmas) but unravelled spectacularly in January. A cryptocurrency may seem irrelevant to an equity investor but they represent a proxy for the ease of financial conditions and a willingness to suspend disbelief in search of a speculative return.
The data scandal involving Facebook and Cambridge Analytica shook the entire technology matrix. Expectations remain too high in this area and the threats from politicians, regulators and disrupted incumbents continue to be brushed off. We have minimal exposure to this area.
Oil stocks have been generally unpopular since the oil price crash of 2014. Expectations remain low but have increased recently as the oil price has risen. We continue to think that the balance between risk and reward in this area remains favourable.
If one of the main contributing factors to the financial crisis of 2008/9 was excessive debt, 10 years of cheap money has not aided this situation as debts have increased. The time-tested solution to an excessive debt burden has been either default or currency debasement (inflation), with the latter infinitely more palatable. It’s unlikely that the recent rise in bond yields represents a tipping point but we continue to monitor this.
Generally speaking, the spread of valuations across the market is wide and we continue to identify opportunities that we believe will generate good long-term returns for shareholders.
As I have previously noted, as contrarian investors we actively seek unfashionable and unpopular investments that we believe can recover. This is where we find the best balance between risk (expectations are low) and reward (things can get better). Our investment approach is designed to anticipate and benefit from change and we will continue to seek out opportunities with potential to profit the long-term investor.
Alasdair McKinnon, Manager
*15 June 2018
Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.
The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. This may mean you get back nothing at all.
Investment trusts are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.
Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.