Our Blog
The Best Laid Plans

I’ve just got back from a couple of weeks’ paternity leave following the birth of my second son.

I’ve been kept up at night recently for obvious reasons and whilst I’ve been off the markets have also been giving some investors sleepless nights! However, if it weren’t for our new baby I probably would have slept ok. That’s because I knew we had a plan.

Of course the issues in Greece and the Eurozone are a concern, but they are ones we’ve known about for some time. We’d reduced equity at relative highs and have had plenty of time to work out what we might do should markets dip back.

As I knew the plan and that we have some great people to implement it, I was able to relax whilst I was off. Of course I kept in touch with events and gave my twopenneth worth when decisions were made, but ultimately there is a great team here at Equilibrium who will just get on with doing the right thing.

According to plan

Prior to the recent market dip we had set a trigger point at a FTSE 100 level of 6,700 to set up a new defined returns product.

When this trigger was hit we got to work, managing to get a great product at a market level of 6,750, only slightly higher than the ideal level. However, given we were at 7,100 not so long ago and the product has an attractive potential return of 10% pa, we’re more than happy with the entry point.

We had originally set a trigger of 6,700 to purchase an equity tracker in our latest “volatility trade”. However, as events unfolded over the past couple of months we became more cautious and dropped our entry trigger to 6,600.

This was also hit and we bought a tracker for most clients at around 6,580. We are likely to sell this fund should markets recover to previous levels.

A new plan required

Of course not everything will always go according to plan. Unexpected events will happen and when our first actions were executed we had to draw up a new plan. Whilst we already had some draft actions in place we had to agree specifics and review the evolving situation.

Our conclusion was that in all likelihood the Greek situation should be relatively contained. There are of course potential issues and there is a risk of contagion in the event of a Greek default and banking collapse. We’re fairly cautious about Europe for this reason but there are still some very good reasons to buy equities, particularly those outside of the region.

As a result, the team decided to ensure more cash was available to purchase another defined returns plan should markets remain at an attractive level. However, we won’t use a Eurozone bank for this just in case!
We also want to execute another volatility trade should markets drop to around 6,350, buying another index tracker.

We had already decided to reduce property exposure and so we’re bringing forward our previous plan to ensure we have cash available to make both investments.

What next?

We already know what we’re likely to do if markets drop further. If we do execute another volatility trade at around 6,350 we’d be likely to sell it again if markets recover to around 6,700.
If they dipped further still then we would review again and potentially convert more of the portfolio to cash just in case.

However, if markets don’t dip but instead recover then our existing volatility trade will likely be sold at around 6,900.

It should be remembered that it is rare a calendar year goes by without a 10% correction. Even 20% falls are pretty common. Most of the time these represent long term buying opportunities. This can cause a few nerves in the short term but as always we will watch events carefully.

The cliché is that if you fail to prepare you should prepare to fail. It’s one we totally agree with. We accept that plans sometimes need to remain fluid and things won’t always go exactly as you expect. However, it is important the plan is there, in writing, so we know in advance what we might do and can execute quickly.