Mixed Markets - The Importance of Sector Allocation

Global equity markets have been fairly mixed today as Cyprus concerns still remain, however the U.S offers yet again a brief reprise from this doom and gloom as durable goods orders beat expectations of 3.9% to rise 5.7%. Gains filtering through from home purchases and the auto industry have filtered down the economy.  This lagging indicator provides great insight into the structure of the economy and at present it seems to be doing quite well.  Let’s hope the FED does not withdraw the support of monetary stimulus before this ball is well and truly moving.

The markets opened cautiously as investors were unsure how to feel about the current issues in Cyprus, some uncertainty had been cleared up, however the bad taste left in European’s mouths may lead to a run on the banks.  As such, banks are to remain closed until Thursday and strict controls on capital withdrawals are expected to be implemented.  This comes after a bailout agreement that will take a substantial amount of all deposits over €100,000.  Now many people are questioning whether this policy may be used elsewhere as Slovenia is teetering on the brink of a bailout.  A further worry is that future elections within European countries will favour the anti-austerity party much more now as people do not wish to suffer the same treatment.

The divergence in equity markets merely highlights the important of market and sector selection.  Most notably, as mentioned above, housing and the auto industry have been benefiting of late in the U.S. whereas you would not want to be holding banking stocks in Europe.  Stock Picking is a hard thing to master, however there are a number of funds that manage to get this right.  Fundsmith’s equity fund has returned just under 24% over the past year investing in a concentrated portfolio of 20 global companies, one to consider for the long term.