Evidence Based Investing

Small Caps – Is there still a premium?

Are Small Caps a truer proxy for UK plc? The performance of UK Small Cap shares has outshone both the overall market and the widely quoted FTSE 100 Indices as the chart below shows. It is worth going over the make-up of the various Indices. The FTSE 350 Index is the sum of the FTSE 100 and the FTSE 250 Indices (in Market Cap terms) The FTSE All Share Index is the sum of the FTSE 350 Index and the FTSE Small Cap Index (in Market Cap terms) FTSE 100 Aggregate Market Cap £1.71 Trillion FTSE 250 Aggregate Market Cap £354 Billion FTSE 350 Aggregate Market Cap is thus £2.06 trillion FTSE Small Cap Aggregate Market Cap £77.05 billion. FTSE All Share Aggregate Market Cap is therefore £2.14 trillion.

Emerging or Submerging Markets?

Evidence Based Investing | August 7, 2015

Emerging Markets had a torrid month in July. Only 5 out of the 23 EM markets made gains, as worries over falling Commodities and rising political tensions prompted Investors to withdraw large amounts from both Fixed Income and Equity funds. According to ETF.com, $15.9 billion has been redeemed from ETF’s in 2015. The banner image above shows that losses were concentrated in Commodity and Emerging market Indices. The Chinese market has seen a 28% intra-month range (High to Lows) as Authorities have tried to contain almost panic-selling, whilst Brazilian equities have fallen 4% in July too.

Staying the Course

Evidence Based Investing | July 8, 2015

The media frenzy is in full swing today as markets see sharp falls, especially in China (and today Hong Kong). But what will this all look like in 10 (or even 20) years? The chart below shows the FTSE All Share Index on a log basis. Without knowing when it occurred, it may be difficult to see the “crash”, when shares fell 21% in one day(!). This underscores the crucial importance of not over-reacting (or over-analysing) market movements. There is a distinction between the map and the terrain – volatility is the norm, not the exception, and those who can ignore the news, the hype, the scaremongering of the financial media will survive and prosper.

The Perils of Market Timing

Evidence Based Investing | July 3, 2015

This is an example of a report I was asked to prepare for a client who was interested in the oil market. It was written on the 27th March 2015 when the oil price was less than $50 per barrel. Post this report, the oil price rose relentlessly, reaching $64 within a month. It clearly demonstrates the limits of using “fundamental analysis” to gauge future market movements. The fact that it was almost completely wrong, despite the wealth of data to support it, reminds one that trying to foretell markets’ behaviour is a fool’s errand. Markets are designed to wrong-foot the majority, and so it is much more sensible to just take what the market gives you. That is what Index Investing is all about. The Oil Market: How to Profit from Price Moves There are several ways to gain exposure to a rise in oil prices: Buy low cost oil producers Buy oil service companies…