Take advantage of volatility in UK small caps
This article first appeared in the October edition of Professional Paraplanner magazine It’s been a...
Knock, knock, knock. Cautiously, you open the door. In front of you stands a kid dressed as Dracula, another dressed as a witch and bizarrely, one dressed as a princess asking if you “wanna build a snowman?” “Trick or treat?” It must be Halloween.
The witching hour is almost upon us – but what does that even mean? The investment world isn’t immune to trickery, so we take a quick look at seven spooky investment terms.
It was believed, in medieval times, that the ‘witching hour’ was when witches took to the skies and abducted children who wandered out after dark. Think Bette Midler and Hocus Pocus. But, when it comes to investing, the ‘witching hour’ refers to the last hour of stock trading in the US – between 3pm eastern standard time (EST), when the bond market closes, and 4pm EST, when the stock market closes. Volatility in this 60 minutes can be higher than at other times during the day.
The term ‘graveyard market’ is used to describe the period after stock markets have been falling for a long time and those still invested do not want to sell and crystalise losses, but neither are new investors rushing in to buy at bargain prices. The fear of further declines is stopping both sets of investors from acting and trading activity is very low: quiet and eerie like a graveyard.
Not quite ‘The Poltergeist’, but hardly ‘Casper the Friendly Ghost’ either. The practice of ‘ghosting’ is illegal and is when two or more market makers (dealers buying or selling stocks or other assets) attempt to influence the price of a company share in order to make a profit. It is illegal because market makers are required by law to act in competition with each other and not collude. The term ghosting is used as it is a practice that is difficult to detect.
This is a UK-centric colloquialism and refers to with-profits life insurance funds that are closed to new investments. They are funds that are basically only being run until the policy matures, which could be a long period of time. Child Trust Funds (CTFs) are also sometimes referred to as a ‘zombie’ product, as they have been replaced by the Junior ISA and existing accounts will only be held until the child reaches the age of 18 – no new CTF products will be launched.
This alarming acronym was coined to refer to four of the US’s top tech giants: Facebook, Amazon, Apple, Netflix and Google. Somewhat inconveniently for this article, the FAANGs have now become the FAAAs. Netflix – always an outsider in the group given its comparatively tiny market capitalisation – was dropped in favour of Alibaba, the Chinese e-commerce company, which is listed in the US. Google became known as Alphabet in listing terms, after it announced the latter would be the name of its holding company.
This is just another version of the St Leger’s Day investment strategy. Instead of “Sell in May and go away until St Leger’s Day (16 September this year)” it is “Sell in May and buy on Halloween”.
Dr Hannibal Lecter is probably one of the most famous of fictional cannibals, but there is a different type of cannibalism popular in the corporate world, which could be slightly more palatable with that ‘nice Chianti’. The ‘corporate cannibal’ is a company which launches a new product into a market where it already has an established product offering. It will effectively compete with itself. The aim is to create a product that sells better, or to increase the market share and put competitors at a disadvantage.
So don’t be tricked this Halloween, by making the wrong investment decisions. Let FundCalibre treat you to some quality research!
To get you started, we’ve highlighted our ten best-performing Elite Rated funds since last Halloween*.
*Source: FE Analytics, all Elite Rated funds, total returns in sterling 31 October 2016 to 11 October 2017