Minutes of the Clarion Investment Committee Meeting

Minutes of the Clarion Investment Committee Meeting – Monday, 14th May

In view of the Stock Market volatility in February, March and the early part of April, the Clarion Investment Committee (IC) felt it appropriate to hold an unscheduled meeting to review the performance of the Portfolio Funds with particular reference to the decisions taken at times of stock market stress earlier in the year to remain fully invested.

This was very much an “interim” IC meeting to allow members to concentrate on the current macro environment, the recent recovery in stock markets and the performance of the portfolio funds and model portfolios.

It was pleasing to note that since the last IC Meeting on 16th April when stock markets were looking quite fragile, and as anticipated by the Committee, markets have staged a remarkable recovery and are once again testing all-time highs having been down by more than 10% at the low point in mid-April.

It was particularly pleasing to note that the Clarion Funds, having been down over the calendar year by between 5 and 6 percent, had now recovered strongly and were showing gains since 1st January of between 1% and 2%, up more than 7% on average since the low point.

As ever with stock market investing the reasons for this turn around are many but as equity valuations are in the main driven by corporate earnings, the recent 1st Quarter reporting season when earnings and profitability were very positive has been a strong contributor to the change in trend and sentiment. It is often said that after earnings and corporate profitability the main driver of equity valuations is investor sentiment, namely greed and/or fear.

It was also pleasing to note that all the underlying holdings have performed in line with expectations. Furthermore, it was agreed by all Committee members that no changes were necessary other than to slightly reduce the equity content of the Clarion Prudence Fund by approx 1% to bring this fund more in line with the strategic benchmark and to “bank” some of the recent profit.

The Portfolio Funds have outperformed their respective sector averages since the start of the year and continue to outperform these benchmarks since inception.

From a macroeconomic point of view, investment conditions remain largely favourable and seem likely to benefit from synchronised growth throughout the world driven by still low inflation, low interest rates and improving corporate earnings and profitability. However, interest rates are gradually rising, particularly in the US, and with quantitative tightening underway and rising geo- political risks, volatility in investment markets is likely to remain elevated until a change in trend is firmly established.

While portfolios may take a few short term hits, investors are unlikely to be felled by a knockout blow but it is worth highlighting that:

Volatility has returned to markets this year but this is not unusual or necessarily a bad thing.
Volatility measures how much prices fluctuate. Price movements can often be larger in negative markets than they are in rising ones but the main message is that volatility rises in times of uncertainty and when there are differences of opinion about what lies ahead.
Asset prices have historically gone up and down with more frequency and by larger amounts than last year.
Investors should be prepared to tolerate some volatility and the negative impact on portfolios in the short term.
While disconcerting and often worrying at the time, volatility brings opportunity for the long term investor.
Volatile markets should not encourage irrational, erratic behaviour – history has rewarded cool heads and a coherent long term investment strategy.
An approach based on sensible, strategic decisions and minimising costs will deliver rewards.