I have been running my own portfolio on a platform since 3rd March 2003

I have been running my own portfolio on a platform since 3rd March 2003, using the exact same funds that I recommend for client portfolios.

During this period we have seen four Prime Ministers, Labour, Conservative and coalition governments, military offensives in the Middle East, the increasing threat of global terrorism and the “Credit Crunch” which resulted in a recession, not to mention more recent events!

My attitude to risk throughout this period has remained somewhere between ‘Dynamic’ and ‘Adventurous’. This means that my portfolio will be more volatile than a ‘Cautious’ or ‘Balanced’ portfolio so in a positive market the value of my portfolio should increase more than those taking a more cautious approach. Conversely, in a falling market, it should see greater losses in value.

The view that I take on my own investment is that, over the longer term, risk (with a healthy dollop of common sense) will prevail over caution. However, please do not take this as a recommendation to take a higher risk approach than you are comfortable with as your approach should be underpinned by your attitude to risk and aligned to your personal goals.

If you worry about volatility then you should maintain a more cautious approach!

As I have repeatedly stated in the past, volatility is unavoidable but by understanding and accepting fluctuations in your investment portfolio, it is possible to obtain a significantly higher return over the longer term.

We have now entered a different stage of the economic cycle. Sterling has lost value against the dollar and as a consequence, the cost of imports (food, oil and commodities in particular) has increased.

Unemployment is low and so we can expect to see signs of wage growth, which we have already witnessed in the US. Interest rates in the US are rising, which only serves to strengthen the dollar further and in turn, increases our own domestic inflation as the cost of imported goods increases.

The Governor of the Bank of England, Mark Carney, has a dilemma; if he increases interest rates too high and too quickly he could face a raft of defaults on loans and mortgages and it could act as a break on economic growth. If he doesn’t act, sterling could continue to drift against the dollar and inflation could rise even faster.

The trend, since Britain’s ignominious exit of the ERM in 1992, has been for interest rates to fall. We expect this trend to reverse at some stage but, given experts have been predicting this for at least the past five years, we won’t say when this will start but one thing is almost certain, given the BOEBR is at 0.25%, they will eventually be right!

Traditionally, in an environment of rising inflation, commodities, shares and infrastructure have benefitted. The price per barrel of Brent Crude has dropped from a high of $125 per barrel in March 2012 to $32 in early 2016 before regaining ground to slightly under $60. Significantly, OPEC and the Russians have recently agreed to limit oil production.

On the other hand, we can expect to see the levels of oil extracted by means of fracking increase as prices recover ($60 per barrel is generally regarded as a break-even point for extraction by fracking). Meanwhile, sanctions on Iran’s oil supplies have been lifted and, unlike OPEC and the Russians, there has been no sign that Iran intends to limit supplies.

Although we have missed the early rally in oil stock and not withstanding new supply lines such as those from fracking and Iran, I believe that there will be further significant gains as oil reserves are drawn down as a result of the major players limiting supply and I therefore firmly believe that we should consider some exposure to this sector.

The traditional enemy of gold is a strengthening dollar. Gold does not have a dividend and therefore has little perceived use in many portfolios but, in times of concern, doubt and low yields, gold has a place. However, when the dollar strengthens, gold has tended to under-perform.

Our growth portfolios have benefitted from holding gold over the last 18 months and we have seen prices increase by almost 25% over the last year. However, based upon our view that the dollar could continue to strengthen as the US economy strengthens and interest rates rise, we see little immediate value in this asset and believe that there are better opportunities in other commodities and equities. I am therefore recommending that you now take the profit from these holdings and reinvest into other funds.

There has been a significant amount of commentary in the financial press about ‘value’ stock versus ‘growth’ stock. You may have come across the expression ‘The Great Rotation’ as investors look to shares that have under-performed and now look relatively cheap compared to the market. These are loosely described as ‘value’ investments and examples of these are typically the sectors that often dominate major world indices such banks, financial, oil and commodity companies.

These types of businesses will often need the right macroeconomic and political conditions in order to provide a good return to investors. As we move into a new phase of the economic cycle, with the US looking particularly strong, these are stocks that are currently being viewed as undervalued and therefore offer a good potential for profit to investors.