Do you have the right portfolio for the current climate?

For years wealth managers have been able to rely on the U.S. for their returns. The S&P 500 has delivered an average annual return of 10.13% since 1957. Yes, there have been negative years, and there always will be, but concentration risk in the S&P 500 has never been higher. Just 10 stocks account for 33% of the value as of the end of 2024. This is higher than the 27% concentration during the 2000 tech bubble.

We aren’t suggesting that will happen again. The consequences of that will never be forgotten and price-to-earnings ratios are nowhere near where they were in 1999. However, that doesn’t mean that they aren’t high, they are.

When market values are high, we see short term pullbacks like the one we’re seeing at the moment. Sometimes that keeps going and we get a market correction (>10%). It could be a good time to buy, or it might be a good time to sit out and see what happens next. As an individual investor, this isn’t likely to be something you would make a call on, and why should you, you aren’t a professional trader, and neither is your wealth manager. At TPP, that’s exactly what we are.

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This feels like a time to diversify, to actively trade portfolios moving in and out of the fluctuating markets in order to increase returns. Does your IFA do this, of course not. Most investment managers will put the money in the market and leave it, quoting ‘it’s not about timing the market, but time in the market’. Well, that’s just rubbish. We aren’t saying that time in the market is wrong, the longer the investment horizon, the more chance of success, but we are saying that timing is key. Saying it’s not is just their way of absolving themselves of blame.

We have specialist strategies for all occasions. Right now, markets seem high in the U.S. Nvidia has fallen 25% from its highs, as has Tesla, and they could fall further. How are you positioned?

The good news for TPP clients is that this is what we do. We are active in our management. Our long/flat strategies have been designed with these sorts of markets in mind. A diversified portfolio should have a range of strategies and this is also the case for TPP clients.

We are fans of trackers, they have a place, but they shouldn’t sit alone as the only plan. These days it’s easy to put money in an index and leave it there. That is the belief that ‘time in the market’ is the best investment strategy. If that’s the case, why bother with an investment manager at all? At TPP we have designed our own trackers which move at a small multiple to the market. Our S&P 500 tracker moves at around 1.5x-1.8x, meaning for every 1% the S&P moves, our tracker moves at 1.5% - 1.8%. It’s that simple. You don’t need to worry about how, that’s our job and we’re very good at it.

We also have a FTSE 100 Tracker, a CAC 40 Tracker, a Europe 600 Tracker and many others. We can pick a few in order to diversify your exposure. If you have time, have a tracker, historically, they work.

BUT, we have also just said that markets are high, so is this contradictory? Well, yes a little. But we aren’t saying we know whether the S&P will rise or fall this year because the truth is, nobody knows; that’s a guessing game which even the very best on Wall Street get wrong more often than they get right. Wall Street consensus has never once predicted a market fall – and yet there have been many.

If you have a tracker, and the markets go up, then you make money. However, what we’re saying is, what have you got if they don’t? Equities could move sideways for a while, and if this happens, will you make nothing at all? The answer is yes, you won’t make money if markets don’t go up because standard investment managers do not have the offering that we have. Risking not making money is just not a risk worth taking.

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In a stagnant market, our long/flat strategies stand out. They will buy in after the market falls and sell out after it rallies. It sounds simple, but only because we make it sound that way. With decades of trading experience, our traders work out the timings of buying in and selling out using a variety of economic and trading data. We do the hard work, you just watch it happen.

If you build a diversified absolute portfolio with TPP, you would have a tracker or two, you would also add to this with our long/flats and our actively traded long/shorts. In a time when markets seem high, they could go higher, but they might not, and it’s this that you need to fear. It is possible to make money in a stagnant market, or even a negative market, and that’s exactly what we ask our traders to do.

Is it expensive? Not really. Each tracker is £65 a month regardless of how much money you invest and each long/flat or long/short is £85 a month. That’s it, there are no other charges at all. It costs nothing to set up, nothing to enter the market and nothing to get out if you need your capital back.

If you would like to speak to one of our professional portfolio managers to see whether or not a TPP portfolio might be for you, please do contact us here.

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