On January 9th 2019, we posted a blog with the title, ‘Attention ISA and SIPP Investors! A new bull market may have just begun.’ I can proudly say that we were right on the money because for the year we returned a very respectable 16.5% compared to the FTSE 100’s 12.1%, beating our benchmark by 4.4%.
With us believing a new bull (up trending) market started January 4th 2019, it could last – if we go off history – for another one to three years, or even longer.
And if f we are right with our prediction, it means there are probably going to be plenty of opportunities to make some very attractive returns.
So how can you profit from knowing that 2020 is year two of a new bull market?
Would you like to know our latest thoughts on the market? Good because in yesterday's Daily Market Update, we started by pointing out what we liked about what was happening and what we didn’t like.
‘What we like / liked
- Presently we have breadth in global equities. The three key areas that we watch closely i.e. US, Asia and Europe are all acting well.
- Since October 3rd 2019, the activity on the US equity market has been extremely constructive.
- Many leading indexes, leading sectors and leading stocks have recently been setting up for breakout moves and many of those set ups have resulted in powerful moves to the upside.
- Since October 3rd 2019, the market has been playing a winning 2-step repeated sequence. It starts with moving higher and it is then followed by a short brief correction.
- A very large number of our top ten holding stocks have recently experienced aggressive institutional buying.
What we didn’t like / don’t like
- The gold sector, (GLD), seen generally as a ‘defensive’ sector has carved out a cup-with-handle pattern and may be setting up for a breakout to the upside.
- Companies belonging to the aerospace / defence sector, have recently shot up and look as though they maybe setting up for breakout moves. This could be an issue because aerospace / defence stocks are normally aggressively bought by institutional investors before and during market corrections.
When looking at the NASDAQ Composite, you’d say that the market was probably in ‘move higher’ mode. However, the market is much more than the NASDAQ which means until we see more sectors joining the party, we will continue to believe that it’s more likely to be in ‘rest and guard gains’ mode.
So, if the market is resting, why is the NASDAQ Composite moving higher?
The answer is that we are simply seeing isolated pockets of strength, things that are ‘outperforming’ the general market, moving higher. Technology, China, Hong Kong, India and emerging markets are all outperforming which is very constructive however we still have a lot of sectors that are consolidating.
Chips, Latin America, Germany, biotech, financials, US small caps and US mid-caps are seven examples of sectors that are still in rest mode. We think that when sectors such as these ‘break out’ of their consolidation patterns, it will then be more likely that the general market has moved back into move higher mode.
With chips, we’d like to see the SMH (Chips ETF) break above and remain above 145.21 (Point C).
With Latin America, we’d like the ILF (Latin America ETF) to get above and stay above 34.83 (Point D).
With Germany, we’d like to see the EWG (Germany ETF) vault above 29.90 (Point E). We’d also be pleased if the biotech sector (IBB - biotech ETF) can break above 123.74 (Point F). The financial sector ideally needs to surpass 31.08 (Point G) and the key level to break through on the S&P 400 is 2073 (Point H). For the S&P 600, its 1027 (Point I).
The challenge that we now have with the NASDAQ Composite and its brother, the NASDAQ 100 is that they are both far extended above their 50-day moving averages. When indexes get too far ahead of these key technical lines, it normally results in a correction. However, the flip side is that the big institutional investors clearly have a huge appetite for tech stocks and in particular, big technology stocks.
We also remain excited about the action we’ve seen coming from Asia since December 16th 2019. We still believe that it’s going to be a good year for Chinese and Hong Kong equities and think Chinese equities are likely to lead this market higher and one of the sectors to watch very carefully to help gauge future market direction.
In terms of investment performance, we’ve had a wonderful start to the year. Already, just two weeks in, we are proudly sitting on a return of 4.3% compared to the FTSE 100’s 1.0%, beating our benchmark by 3.0%.
All remains well. At the moment, the market appears to be stuck in ‘rest and guard gains’ mode however we are seeing a few key sectors outperforming and moving higher. Once the rest is over, if the market remains in character, it will take its next leg upwards.’
Want to know what we are personally invested in?
As always, if you have any questions or thoughts on the points covered in this post, please call Mr Paul Sutherland, ISACO’s co-founder and Managing Director on his personal telephone number which is 01457 831 642. His email is Paul@isaco.co.uk. You could also leave a comment below or connect with us @ISACO_ on Twitter.
A specialist in ISA and SIPP Investment
ISACO are a specialist in ISA and SIPP investment and together with our clients have an estimated £75 million actively invested1. Our ‘Shadow Investment Service’ gives ISA and SIPP ‘DIY’ investors, the opportunity to look over our shoulder and buy the same funds that we personally own, effectively piggybacking on the expertise we have of delivering superior returns over the long-term.
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The key difference with our service is that we put our money where our mouth is. And as an ISACO premium client, you’ll have the opportunity to mirror our ‘market–beating2. investment portfolio throughout the year. This gives you the potential for achieving almost identical returns to the ones we make.
Shadow Investment benefits:
- Opportunity to buy the same funds that we buy
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By following our lead, you are getting clear guidance on what funds to buy, when to buy them and when to sell them. This means you get to see what we are doing with our own personal money and if you agree with our fund pick, you have the chance to mirror the trade. Typically, we only make about 4-5 trades over the course of a year allowing the service to be very time friendly.
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1 Internal estimation taken January 1st 2015 of total ISA and pension assets owned by the ISACO Investment Team and ISACO premium clients.
2 January 1st 1998 - December 31st 2019. ISACO annualised return of 5.2% compared to FTSE 100's 1.7% over 22-year period beating our benchmark on average by 3.5% per year.