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The TCFP investment committee met on 16 September to discuss the current economic, political and investment environment.
As a result, the TCFP Model Portfolio remains unchanged. Here are brief notes of our discussion:
Politics
The good news about the new Labour Government is that political stability should return and that's good for lots of reasons. Since Brexit 8 years ago, we have had 6 different Prime Ministers and who knows how many Chancellors. Sticking with the same for 5 years is a good thing.
That’s the rosy outlook.
The not so rosy is that this Government seems set on a “we know better than you” path and the high tax and high spend we have become used too will only get higher.
To raise more tax, they will look to groups that are not on their “preferred list” and that can’t escape. The young, very wealthy and international corporations are safe. Smaller businesses, second homeowners and older people are not.
We won’t speculate on what taxes will be affected, but we do expect them to be as stealthy as possible.
In the US, Trump is less likely to win than he was, but whoever does win will also be presiding over a relatively high tax, high spend economy too.
The EU remains sclerotic with no particular appetite to do much more than talk about doing things differently, and then not.
Five years from now we expect the elections to be much more exciting as ever more chickens come home to roost. You can’t tax and borrow and spend ever more indefinitely.
Could Argentina be showing us the way ahead?
Interest Rates & Inflation & GDP
With inflation at acceptable levels and GDP growth good but not great, the US is sure to start reducing interest rates. The market expects up to 2.5% in cuts over the next 12 months. We expect something much more modest.
In the UK it is less certain rates will fall further in the near future. Over the next 12 months a 1% drop seems reasonable.
Inflation in the UK and US is not at the target level but is at an acceptable level. We can expect it to tick up over the next year, but not to any worrying degree.
GDP growth in the US is decent and, in the UK, not bad. The new Government has allegedly made growth their focus. We are yet to hear or see a single thing that backs that up.
TCFP Model Portfolios
All of the above adds up to no change in our approach to investing. Whereas on the surface there may appear to be some turmoil, politically particularly, this does not translate in the need to change the way your money is invested.
We remain committed to you being the owners of the biggest and best companies around the world. They will continue to prosper regardless of what is going on around them.
Therefore, we are comfortable with our 80:20 equity:bond split for now, as we are with the 80% in equities being split 40% in large companies, 30% in smaller companies and 10% in emerging country markets.
As we meet with you, we will rebalance as needs be and make sure you have enough cash to one side to cover the next 1-3 years of spending needs.
And that concluded September’s meeting. The next ICM will be in December.