One of the new requirements is to report to investors at least quarterly from now on, rather than six monthly as before. Some people will welcome this, but we know that many of you would prefer to keep paperwork to a minimum. We do not have a choice in how often we send you reports however and so you will receive updates every three months from us. You may of course continue to view your investments as often as you like using your existing online facilities if you have set these up.
The new rule that we think needs to be explained more fully is the one that says that investment firms providing the service of portfolio management need to inform clients by the end of the following business day if the value of their portfolio has depreciated by more than 10% from the beginning of the last reporting period. It also requires disclosure at each subsequent fall of a multiple of 10%.
Obviously we hope not to have to contact you under these circumstances but it would be foolish to believe that this will never happen. Indeed, it is likely to happen at some point in the future and this is why we’re contacting you now.
Long standing clients of ours know that we work extremely hard to minimise falls in investment values during times of market turbulence, but sometimes these can be unavoidable. It is crucial to understand though, that if we write to you to tell you that your investment has fallen by 10% or more, it is very important not to panic sell. In fact, there are many periods in the recent past when such a market correction has been an ideal time to buy rather than sell. This is not about Skerritts keeping their funds under management stable but has very strong reasoning to back it up.
Our own research has shown that, looking back at how the FTSE 100, S&P 500 and the DAX (UK, US and German Market Indices respectively) have performed since 1st January 2008, if the new rules had been in place back then, we would have written to clients invested in these indices on a combined 31 occasions because there had been a drop of 10% in values (15 times for the DAX, 9 times for the FTSE 100 and 7 times for the S&P). if investors had sold at these points, it is very unlikely that they would have re-entered markets straight away, yet it is no coincidence that since 2008, every correction has seen a “V-shaped” recovery (i.e. a quick one) because this new era of low interest rates and low bond yields causes cash to seek a meaningful return in the equity markets. By resisting the urge to sell after a sudden drop in value and remaining invested to ride through the dips, investors in the FTSE 100, DAX and S&P 500 would have seen their investments rise by 73%, 92% and 167% respectively between 1st January 2008 and 1st January 2018 [Source FE Analytics].
This is a simplistic example as it does not include charges and is not reflective of our more tactical approach to investment, but hopefully it makes the point that short term falls in value of investments are unwanted and worrying, but are rarely the best of times to jump ship for “safer” waters. As your investment managers, we will be more aware than most of why markets have fallen and how best to navigate whatever troublesome events have been the cause. Remember too, that we have our own, families’, colleagues’ and friends’ money in our funds and so whatever we advise for clients is what we advise ourselves as well.
Naturally we hope not to need to contact you with a “10%” letter, but if and when we do, don’t panic. Talk to your adviser first before taking any action, bearing in mind that very often, the best action is to do nothing.
The value of investments can fall as well as rise and past performance is not a guide to the future. The content of this publication is for information only. It does not represent personal advice or a personal recommendation, and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Adviser’
Established in 1990, Skerritt Consultants Limited is regulated by the FCA – number 163291 and is a MIFID firm
The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk.