Is your money safe enough for you to go on holiday?

Holiday time. Time to trust your medium-term investment strategy to plod along nicely while you pack your bags for a well-earned summer break?

There are two answers: “no”, and “yes”. The “no” school of thought believe that this is not a good time to be putting your feet up, ignoring economic news, and generally trusting your strategy. That school will be characterised by investors such as “traders” and speculators. Those that need to act on information every nano-second.

Yet, it also features investors who can’t explain what their strategy actually is. They might have a wide access to assets, but access and management are two entirely different things. If you don’t know what your benchmark is for this year, you are in this category. A dangerous category because you might just be holding the wrong stuff on the day that calamity hits. The current economic scene is one that suggests that ‘calamity day’ or days could strike at any time.

Then, you have the ‘yes’ school. We have championed this school many times in this space through the art of multi-asset-managers.

Multi-asset-managers often feature in ‘core and satellite’ investment philosophies. The idea being that the majority of a portfolio (“the core”) is managed by the multi-asset-manager acting on a strategic mandate, but with the ability to make “tactical” short term decisions.

This time of the year provides one of the very good reasons for championing this approach: we can go on holiday. Let the ‘tactical’ component of the multi-asset-manager deal with “calamity day” if it happens to be on the day you have your feet up on a Pedalo, while your children pedal, somewhere off a beach in the Indian Ocean.

Good news in June: the MSCI rose around 6 per cent in the month. About half of this was in the last working day of the month. This helps underline the point we made last week, that, single days can have significant impact (both positive and negative).

Last week showed that a specific S&P return over 20 years was halved if you missed the top 10 trading days over the 7,300-day period.

Yes, you must be “in it to win it”; and you must be allowed to go on holiday whether or not the euro collapses. All hail the multi-asset-manager who allows you to do this!

Better bad news

This June was partly good because May was so bad. May’s bad: Greek and Spanish debt woes, China’s economic slowdown, and concomitant uncertainty. All replaced by better bad news.

In May, there were fears about Greece (subsided post election) and markets were worried that lending to Spanish government (rather than direct to Spanish banks), would put the wind up existing Spanish bond holders (would their debt be subordinated?). Against this background, the “better bad” is summed up by Sean Daykin (multi-asset-manager at Emirates NBD), who points out that: “Germany finally made some concessions, allowing the new European Stability Mechanism bail-out fund to inject support directly the Spanish banks, rather than via the Spanish government, and without austerity strings attached”.

Last gasp June surge

Daykin suggests this portends “closer fiscal and banking union down the road”, which is what the Germans believe they need to bring the Eurozone under control. This was the backdrop to the last gasp June surge.

So, can we go on holiday in July?

For Daykin, there are still potholes on the road to Euro-togetherness, not least: “markets have become fairly disillusioned with the Eurozone and its leaders”.

Daykin’s fears are exacerbated by the lack of coherent detail on how “centralisation” of Eurozone banking will proceed. Plus the fact that the Greek situation has not exactly gone away: “We may therefore see pressure increase on Greece and, once again, heightened anxiety during the summer that Greece will default on their debts”.

Therefore, no, you can’t go on holiday if you do not have a tactical action plan built into your investment strategy.

What about holidaying in August instead? Well, you already have the answer, but Daykin’s forward thinking is slightly more positive: “During July and August, we will see corporate earnings announcements. Expectations for earnings results have come down fairly significantly over the last few months, with earnings in the US actually expected to fall from the first quarter. Typically, companies beat these lowered expectations and we are expecting to hear about how the weakness in Europe and the slowdown in China is negatively impacting business. However, with earnings expectations set relatively low, valuations not particularly demanding and with central banks taking more concrete actions, we believe that higher stock prices over the next few months are possible, despite the miserable economic data that is likely to be reported.”