Q2 2016

Wealth Financial Planning

Wealth Care

Wise

Market Comment Q1 2016

2016 - 'Its going to be a bumpy ride'The year started with a phenomally poor start, which is rare for a new year period but Investor Schizophrenic behaviour continued and markets have ended the quarter in broadly positive territory.

The question of market valuation and economic performancehave combined with geopolitical ructions to create a tumultuous beginning in 2016Volatility reared its ugly head again as investor confidence whipsawed between whether economic growth was behind us or ahead and whether market valuations were fair given this backdrop?

Performance VolatilityWealth Financial Planning Investment Models 2015 2014 Last 3 years Last 3 years

Wealth Defensive (3) 1.59% 2.94% 5.33% 2.31

Wealth Balanced (6) 4.88% 7.77% 20.30% 6.55

Wealth Aggressive (10) 8.72% 9.17% 29.70% 9.85

Wealth Passive Conservative

1.09% 9.50% 14.10% 6.23

Wealth Passive Balanced 1.68% 6.96% 14.60% 7.68

Wealth Passive Growth 2.34% 6.43% 15.10% 9.08

In our talking point, Lindsay describes the seven deadly sins of investing and the steps investors should take to be a Saint rather than a Sinner!

Q1 2016

0.00%

1.10%

3.99%

3.01%

2.26%

1.54%

Wealth Care

2016 - Q1 Key HighlightsVolatility is the only word that can describe the roller coaster of market gyrations endured in 2015 and again during the first quarter of 2016. There were also political ructions and turmoil in the oil market to contend with.

The start of 2016 saw the post-global financial crisis expansion enter its seventh year; U.S. GDP grew for the 20th straight quarter and continues to expand despite volatility. We focus on the US economy because it's health is pretty much dominating the health of the global economy at the moment and it's central bank policy still captures all the attention.

Yet on many metrics, sentiment is fragile: High yield spreads hit a post-crisis high of 839 basis points (bps), oil fell to a 13-year low of $26/bbl, and global equities flirted with a bear market. We maintain our expectations of subdued growth but no recession, and note that equity bull markets are often seen to “climb a wall of worry.” But this is no ordinary wall of worry. So despite our conviction in low but positive growth, we adopt a cautious tone.

Some of the recent market turmoil can be traced back to policy divergence and waning confidence in central banks. Anxieties around the start of the U.S. hiking cycle in the face of lacklustre growth were an acute issue early in the year, but these are dissipating as the Federal Reserve (Fed) moderates its path of hikes to balance U.S. domestic strength with global vulnerabilities. The case for positive growth in 2016 is underpinned by the strength of U.S. consumption, household balance sheets and the labour market.

The world economy continues to grow and the healing since the global financial crisis is giving us more resilience and flexibility to respond to surprises. The China slowdown is to some degree inevitable as the law of large numbers and competitive pressures arising from wage increases and environmental degradation affect growth. When compared to fixed income alternatives, equities continue to look inexpensive on many counts. We remain cautiously constructive.

As it relates to the developed economies, the increased anxiety in markets could easily lead to volatility being sustained for a period of time. This ongoing tug of war between fear and greed could lead to unsettling market declines but also could lay the groundwork for the next sustained move up. The key for investors is to focus on the goals they want to achieve and their respective time horizons, which are generally measured in years. In summary, we should examine the current events through a longer-term lens.

numbers determining the fi nal outcome.

Outlook for 2016

3 Months 6 Months 1 Year 5 Years

FTSE 100 0.07% 3.79% -5.26% 25.60%

MSCI Europe ex UK -3.03% -0.02% -10.18% -0.60%

US Equities S&P 500 Index 3.75% 13.95% 4.45% 86.77%

MSCI Global Emerging Markets 3.45% -11.82% -9.99% -4.44%

IPD UK All Property Index 3.38% 6.77% 13.35% 66.43%

By Chris Huelin – Chartered FCSI Chartered Wealth ManagerDirector – Investment and Wealth Planning

However, the recent growth scare has highlighted the vulnerability of the world economy to a downturn in activity. Leading indicators such as the Conference Board indicator for the US have slowed. Growth concerns have been exacerbated by fears that the central banks do not have the firepower to deal with a major adverse shock. Interest rates remain close to zero and although further QE is an option, there are doubts about its efficacy beyond boosting financial market prices and inflaming the debate about inequality.

Whilst many fear that corporate profitability falls are inevitable, we will need to see if consumer spending activity picks up on the back of higher wage growth which is already being witnessed in the US. If this comes through, given household debt in the US has fallen, then it is possible to see corporate profitability higher as margins increase. Market valuations are not excessive and I feel there is a strong need to ‘stay the course’ with the investment programme through these schizophrenic times.

The path of the U.S. dollar remains a key consideration. We expect some residual strength but see the dollar consolidating by mid-year as the market prices in the Fed’s glacial path of hikes. If more-stable and uniform global growth aids dollar consolidation, that would signal increased risk appetite and a better outlook for emerging markets. But if the dollar falters because of sputtering U.S. growth, the outlook would darken for risk assets generally. Ultimately, we remain optimistic about global growth and anticipate a more virtuous end to the dollar cycle, but the risks to this view reinforce a more cautious stance.

Closer to home, Q2 will be dominated, for us, by talk of the Brexit vote with polls tight and the result of either vote unclear. In trying to give a view of the market impact it is difficult to get an unbiased view. Facts are contested and even where they are agreed between the different sides, they can be argued in both directions. What we can be sure of is that such arguments will be put forcibly on both sides. We can conclude that this will be highly divisive.

We do know that any negotiation over an exit, under the treaty terms, will take at least two years to negotiate and the replacement bilateral trade agreements may take longer. Those that argue that we will be better out in the end may be correct, but the process of getting there is likely to lead to a prolonged period of uncertainty. This may delay external investment and depress sterling as a result. This would push up the cost of imported goods. While the Bank of England has an inflation target this could make higher interest rates more likely. Others will argue that higher disposable income will boost the economy.In the long run, if we can negotiate favourable trade deals and stay independent of Europe we may be better off.

“When I look back upon my lifeit's always with a sense of shame

I've always been the one to blame” .... When it comes to investment our behaviour generally tends to cover the spectrum from reticent to reckless and all points in between. In fact the seven deadly sins could have been created specifically to explain the way we deal with investing. So how do these sins manifest themselves in our investment behaviour and how can we try and avoid them?

For you, your family or your businessTalking Point:The Seven Deadly Sins of Investing … and how to avoid them

An excessive need to accumulate bigger and bigger gains means investors can be blinded, falling prey to the notion that if they sell a successful investment that they may be missing out on further gains. This mentality has a long and depressing history of turning unrealised gains into realised losses when things ultimately turn sour. We’ve seen this played out time and again – right back to the South Sea Bubble of the early 1700’s through to the recent dotcom boom. Investors following the latest investment buzz desperate not to miss out, are encouraged by seeing their investments grow by unsustainable proportions believing that they have found the golden ticket. They rarely do. The emotion of greed leads to "confirmation bias" where individuals become blinded to contrary evidence leading them to stay invested far longer than they should.

GREED

This form of extreme anger is often associated with a lack of control and recklessness in investing, leading to overly aggressive investment. This starts out with an over attraction to risk, even to the point of seeking it out, not bothering with a sensible investment strategy or with balance and diversification. When, inevitably, things don’t work out, anger sets in (as people hate to lose money). “Loss aversion”, as it is referred to can cause an investor to either sell too soon or, even hold on too long when they can't accept a loss, meaning they find it almost impossible to move on and think strategically or logically through the haze of anger they are feeling.

SLOTH

Such investors often just don't pay attention to detail and will readily invest in something that doesn’t perform well. They want to take the easy route and have been wooed by a big name, or by a smooth sales pitch. Investment portfolios, like a garden, must be tended to on a regular basis, pruning (rebalancing asset allocation), weeding (selling poor investments) and, harvesting (taking profits from the good investments). If not regularly tended a portfolio will not yield the required results. Sloth is an avoidance of hard work and activity and, investing, like anything worthwhile requires both of these on a regular basis in order to succeed.

By Lindsay Wright – Financial Planner at Wealth

Most noticeable where investors believe that recent performance will dictate future performance - known as "recency bias". Investors tend to buy something that has done really well recently, chasing performance. This is a guaranteed recipe for disaster for an investor and explains why many investor returns often lag those of the funds or portfolios they invest in, buying only after performance begins to overheat, then sell after performance drops. Lusting after previous performance leads to buying high which ultimately leads to the second half of the cycle of selling low.

GLUTTONY

They are rare, those investors that have made big bets and lived to tell about it. Even less those that have done it regularly. History is full of tales about those who had all their money invested in the latest thing or in one particular investment; all with huge, fabulous runs and disastrous endings. More often than not those that try to bet big and bet excessively wind up broke. However, this still doesn’t seem to deter many from trying despite repeated advice and recommendations to manage portfolio risk and not indulge in short term ‘trading’. Research suggests that those with a high risk tolerance are more likely to exhibit overconfident behaviour resulting in trying to chase the big winners, more often than not resulting in lower returns within their investment portfolios,

The desire to be part of something exclusive or being envious of other investors’ successful portfolios or wealth sometimes drives people to throw money into investments that don't fit their personal goals, against their better judgment. A lot of that has to do with a sense of exclusivity, one of the reasons investors were so willing to believe in Bernie Madoff's Ponzi scheme - a small group (supposedly) making a lot of money. This is classic “herd mentality”, a behavioural concept referring to investors who follow the crowd and invest in what’s popular without concern as to whether it is right for them. Similar to Greed in certain ways, this herd mentality leads investors to follow the crowd and buy in while prices are at their peaks only to watch their investments come crashing down. Envious investors find themselves endlessly believing the grass is greener, piggy backing onto what others are doing without stopping to think.

WRATH

LUST

Otherwise known as overconfidence in investing, typified by the investor that believes they know best, because they’re smarter than average. The problem is that those who overestimate their financial ability are liable to end up in trouble - “a gambler never makes the same mistake twice; it’s usually three or more times!” Proud investors who experience a successful run tend to develop an inflated opinion of their own skill, leading to complacency and exaggerated risk taking. When markets are rising, it seems as if any investment works leading to people thinking that they are smart investors however, the reality is that there is a big difference between being smart and just being along for the ride.

PRIDE

ENVY

Just as the biblical deadly sins can often be harmful, the seven investing sins can lead to disaster for your investment portfolio especially where decisions are based on emotion. Of course none of us as human beings are totally immune to emotion which is ultimately what drives our behaviours.

Please see next page for steps to 'Saintly' behaviour

SUMMARY

Wealth Care

Disclaimer

The content of this newsletter is in no way a recommendation to buy or sell investments and is for information only purposes.

Investing in key long term themes through well diversifi ed portfolios, which match attitude to risk and time horizons is paramount to success. Investments of any kind have risks attached. World events can have

catastrophic effects on what can sometimes be viewed as the lowest risk investment products.

•

Past performance is not necessarily a guide to future performance.•

The value of your investments can rise and fall.

• You may not get back the amount you originally invested

• Income received from your Investments may rise and fall and not be guaranteed

• Some funds, such as Emerging Markets, Commodities, Hedge Funds and funds that hold other currencies other than Sterling can offer even greater risks to your capital. They also may deal infrequentlyand may delay redemption.

Investment should always be viewed over a minimum 5 year time frame as periods of both positive and negative growth can occur in any asset class or portfolio.

If you wish to discuss your fi nancial arrangements in more detail or require clarifi cation of any points raised in this newsletter please do not hesitate to contact us.

Financial Planning is a service provided by Wealth Financial Planning Jersey Limited which is authorised and regulated by the Jersey Financial Services Commission (JFSC) under the Financial Services (Jersey)

Law 1998. We provide advice and services on a full range of investments which may include Unit Trust Platform based Investment products, Life Assurance, Collective Investment schemes, Retirement Annuity

Trusts and all Pension products. We are not Discretionary Investment Advisors, but may offer the Services of such Advisers, should they suit your needs.

Wealth Financial Planning Jersey Limited is authorised and regulated by the JFSC for the conduct of Investment Business. Our Registration Number is IB 00268

The JFSC web site is www.jerseyfsc.org and their address is PO Box 267, 14-18 Castle Street, St Helier, Jersey JE4 8TP.

Wealth Financial Planning can offer a full free review of your investment planning needs, as part of your service level agreement.

Please contact your adviser on 01534 888404 to discuss or arrange a meeting.

Wealth Care

Nonetheless there are some ways we can negate many of the typical ‘bad’ behaviours displayed in investment markets:

• Determine your investment goals and what you realistically want to achieve• Try not to pay too much attention to the short-term events that drive media coverage and

investment markets• Recognise that we all have different situations and all have different attitudes to investment and risk• Don’t follow the crowd - Avoid the herd mentality• Accept that investing contains an element of risk• Don’t go looking for the next big winner - Diversify to minimise risk• It is not possible to consistently second guess investment markets• Invest in line with the level of risk you are comfortably able to tolerate• Time is your greatest friend in investing• Understand that you don’t need to know everything about investing to be a successful investor• Do what's best for you by understanding your own personal risk profile, investment time horizon and

investment knowledge

Above all make sure you obtain professional, unbiased third party advice from a trusted investment adviser who will talk you through the options, the associated risks, and provide a realistic assessment of what you wish to achieve. They will also help you establish a suitable investment strategy (that is free of sin!).

.. “for everything I long to dono matter when or where or who

has one thing in common tooIt's a sin”

(lyrics courtesy of Neil Tennant & Christopher Lowe)

SUMMARY (Continued)