Forward glance - March 2018

The March edition of KMG's forward glance


March – forward glance

Our latest Forward Glance Strategy document illustrating the Medium portfolio for March 2018

1st November 2011 – 28th February 2018 – gross return (since inception)

Strategy – March 2018

It would be remiss of us not to discuss the return of volatility over the past month or so. Remember that it is more unusual to see a period of two years where markets have risen in a seemingly straight line than it is to see markets rise and fall in a cyclical way, albeit the trend over the past 100 years has been generally upwards.


If asset prices have been helped upwards by the printing of money by central banks around the world, then perhaps it is the very reversal of this program (something that has never been done before on this grand scale) that is worrying the minds of investors the world-over.

In recent years, assets of all types have benefitted from this period of low inflation while economic activity has grown reasonably well. It has allowed equity, houses, art, cars and so forth to achieve the valuations particularly as interest rates afforded so little returns that money was put into different assets that could generate a better rate of return.

At the start of 2018, it looks as though the supply of cheap labour has fallen dramatically. It is more difficult to find people to fill job vacancies, both skilled and unskilled, and the result is to require employers to offer higher salaries, which is the beginning of the inflationary cycle that leads to higher prices, higher wages, lower purchasing power, less savings, more debt and so on.

A degree of inflation is desirable, hence the 2% target for the Bank of England. Too much and the past response has been rapidly rising interest rates, with money drawn out of the economy and on several occasions a recession. Exactly the opposite of the quantitative easing that was used to support the economy after the financial crash.

We do not really know what the effect of this will be, but it is likely to be well signposted and very slow. Most recessions are caused by central banks raising interest rates quickly, but we expect that central banks and politicians are ever so slowly nudging people towards this reality, so that when it happens the effects will be more limited, but also remember that we have a whole generation working in finance today with no experience of anything before the financial crash.


While there is a great deal of speculation over what will happen to Trump, Corbyn, tax rules, and so on, the changes to the demographic makeup of the world are much more solid. The rise in the number of people on the planet, national birth rates leading to increasing or decreasing national populations is not so temporary and can be projected and anticipated accurately decades in advance.

Thus, despite all of the short-term noise and consternation, this and several other structural themes are the basis for our long-term investment strategy.

Where does this leave us?

It leaves us in a strong long-term position. We know that the debt market will struggle when rates rise, and we are now only holding low levels. We believe in the themes of demographic change and technological advancement and are targeting these ever more precisely as opportunities arise.

The market is volatile and that it reacts to announcements, or tweets. We also know that short-term changes are not what builds financial security, which comes with strong growth over many years, not weeks or months.

Portfolio analysis

Investment objective

The medium portfolio offers a diverse fund range with the aim of achieving capital growth over the longer-term. The portfolio has the ability to invest in a broad range of investments on a wide geographical basis. Equity exposure within this portfolio will vary between 50% – 70%.

Contribution to performance by fund – 1 year

1st September 2017 – 28th February 2018 – gross return (six months)