On the Money

Patience pays off while the world frets

Alan SteelA recent US investors’ survey found that those reacting to headlines about the markets managed to lose between 6% and 12% in only six months, with the biggest losers being the most active. Those who stayed patient and simply tracked the S&P 500 Index gained more than 4%.  

The report was discovered by my managing director Steve on his recent holiday in Arizona.  I don’t know about you but when I think of Arizona I think of desert, mountains and a huge hole (the Grand Canyon) 180 miles long, a mile deep and up to 14 miles across. I don’t think of Arizona as any kind of industrial or service based powerhouse. Do you?

Yet when in 2015 its GDP was calculated it turns out that if it was a country it would be the 36th biggest in the world, bigger than Denmark or Singapore, and only a smidgeon smaller than Hong Kong. Wow. 

How about Florida,  a State apparently full of alligators, theme parks and old age pensioners thanks to its sunny hot climate? What would you say? Same size as Arizona? Smaller? Bigger?  Surprisingly, its economy is three times the size, and it’s the fourth biggest income producing state in the US with an output one third higher than Switzerland and Saudi Arabia. By the way they’re in 19th and 20th place in world GDP rankings. 

New York on its own has an economy bigger than Russia, Texas bigger than Canada, and the daddy of them all,  California, would push France down into seventh place.  If you were to add Texas and California together it would replace Japan as the third biggest economy in the world. Add California and Washington state together and they’re bigger than UK GDP, currently in fifth place. 

Morgan Housel of Motley Fool estimates there are 200 million businesses in the world.  A Google search tells me that about 50,000 are quoted on world stock markets somewhere. Despite the constant pessimism we hear about the poor prospects for global growth, you’d imagine at least some of these businesses’ shares by law of averages would be trading below real value.  I don’t believe they’re all overvalued.  Do you? 

Back in August I compared the income earned by the world’s biggest income earning companies. Of the top 500, 134 were in the US, totalling $8.5 trillion income. In the UK we have a mere 25, with less than $1.15 trillion income.

There’s a belief the world economy has stagnated since the Dotcom boom/bust. Odd that, considering official numbers show it as a total of $37.3 trillion in Jan 2004 and double that now. 

Ned Davis Research calculate that currently the US has 26% of world GDP while the UK’s share is only 4%. So, by law of averages, equity investors should have far more exposure to the US, never mind its increasing array of world class technology businesses such as Alphabet (Google) and Amazon.

Yet every time we go through new client portfolios, whether in pension funds or not, the same story emerges with less than 7% exposed to US equities, and as much as two thirds in UK stocks.

And if that doesn’t make sense, consider that over the last 12 months in particular investors here and in the US have been dumping equities in panic to cash and bonds, despite zero (or, even worse, negative) interest rates. 

Fortunately, all that is great news for optimists.  Even better …as you are reading this I’ll be sunning and chilling in Ibiza and just back in time to tuck some savings away into James Harries’ new Global Income Fund at Troy which launches on  1 November and which will look to have 60% invested long term in high quality US stocks. Salud! 

Alan Steel is chairman of Alan Steel Asset Management

Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.


This is a regular column submitted via the DBdirect service. For details click here. 

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