Category: Uncategorized

by Franklin J. Parker, CFA

Earnings season continues. As it stands, big US companies are still expected to deliver no growth in profits this quarter over this time last year. This week we see figures from Meta (Facebook), Microsoft, and Alphabet (Google). To get a sense of how much the top 7 stocks are influencing the market as a whole: if we factor out the top 7 stocks from the 500 companies in the S&P 500, earnings growth goes from flat to -6%. I am concerned that most companies in this market are not delivering any profit growth, and this may be a signal that the recent run-up in prices is driven more by hype than underlying fundamentals.

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The big news last week was Fed chair Powell’s comments that rates would likely stay higher for longer if inflation doesn’t move lower. This spooked investors, and pushed bond yields higher and stock prices down. It is a reminder that policymakers do not appear to be okay with the “it’s good enough” argument. They really are committed to inflation at 2% or less. Investors are now expecting rates to begin dropping in August and November, rather than June (which was the previous expectation).

We get some important economic data this week, including a first look at first quarter economic growth (GDP), earnings, and durable goods. The Fed’s commentary last week was yet another example of investors getting their rate cut projections wrong — officials have consistently kept their policy response more galvanized than markets expected. Combined with the problems in commercial real estate and weak economic signals, I am still cautious.

Chart of the Week

Retail sales are a closely-watched figure lately, and rightfully so. In the US, consumer spending is almost three-quarters of economic growth. Looking at the raw figure, retail sales look like they have been holding up — however, when factoring out the effects of inflation, we see that retail sales have been largely flat over the last 18 monts or so. This is a concern, and may help explain why companies have struggled to increase earnings over that same period.

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The 1 Thing That Makes Retirement Work (or Not)

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Two big news items last week for investors.

First, inflation came in at the top of the expected range. Investors are now wondering if the Federal Reserve will cut rates as they expected. We have consistently seen investors reprice their rate cut expectations to be higher for longer. It appears the Fed’s actions so far have done little to slow down consumer demand — indeed, today we saw retail sales numbers that were much better than expected.

The second big piece of news were bank earnings. JPMorgan and Wells Fargo both reported earnings, and both disappointed investors. The money they are making from borrowing and lending — the core business for a bank — has stopped growing. That said, earnings reports so far have been mixed: some good and some bad (though only a handful of companies have reported so far).

Overall, the US economy continues to sputter along. Consumer spending is a key variable to watch, as is employment; those would be the last dominoes to fall if a recession is setting in. Earnings are also important, and we are now in the thick of earnings season. I continue to recommend caution, but exactly what that means to you is very dependent on your goals and personal financial situation.

Chart of the Week

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The US economy has bucked the global trend, consistently posting better-than-expected economic growth. The Eurozone has kept up until recently, where the UK and the EU have fallen into two quarters of contraction (which is my definition of a recession). The question, of course, is whether the US is subject to the same forces driving similar economies downward, or insulated from them.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Earnings season begins this week with big banks like JPMorganChase, WellsFargo, Goldman Sachs, and Comerica. Overall, earnings at big US companies are expected to grow by about 3%. Given how much higher the S&P 500 has run, 3% earnings growth is pretty dissapointing. Also important: a higher percentage of companies are giving negative guidance on their earnings — that is, they expect their own earnings to be getting worse this year.

This week we also see the all-important inflation figures. Analysts expect a 3.4% inflation rate, much higher or lower is likely to push prices around because inflation is the main figure that the Federal Reserve is watching. A figure too low would be seen as accelerating the Fed’s coming interest rate cuts. A figure too high would be seen as delaying them longer. At the moment, everyone expects about two cuts this year, with the first coming in June.

Employment remains the bright spot for the US economy. Last week, the unemployment rate came in slightly lower than the month before, which is good news. Job openings also remained high. Employment is typically the last domino to fall in a recessionary situation, and continued strong employment is a good sign amidst a sea of otherwise poor economic data.

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Chart of the Week

Over the last year, we have seen stock prices grow faster than earnings in large US companies. Ultimately, growth in stock prices has to be driven by growth in earnings, so when the two mismatch for too long, markets become brittle and easily rattled. Not counting the Covid timeframe, this is the largest mismatch between price growth and earnings growth in the last 15 years or so.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Summary

This week we see important data on the state of the labor market. As we explored in last week’s post, the labor market is a recessionary signal that we watch closely because it heavily influences the stock market. Analysts generally expect about 163,000 jobs to have been created last month, and the unemployment rate to hold at around 3.9%. Figures significantly different from these would likely push markets around — though they would be interpreted through the lens of “how will the Fed react to this?“.

We also saw data on manufacturing this week. For the first time in one and a half years, US manufacturing was not in contraction. I am not too excited about the figure, however, because it shows that manufacturing is at breakeven levels. If we see consistently improving figures in the next few months, I would take that as a positive sign.

Overall, the economy still seems to be sputtering. Earnings season is a couple of weeks away, and that will shed some light on whether companies are coming out of a short “earnings recession” or whether a real recession is not far behind. The S&P 500 just had a stellar first quarter, but without underlying fundamentals to support it, I wonder how long it can continue. In the end, I am still recommending caution — exactly what that means for you and your goals? Well, let’s grab some coffee and talk it through.

Chart of the Week

Bankruptcies are one of those data points that is giving me pause. In the last quarter of 2023, bankruptcies were 40% higher than the year before. A 40% increase in bankruptcies is in the recessionary zone, and, yet, we haven’t seen GDP growth slow significantly. Also concerning is how closely the “down-up” shape tracks the 2006 – 2009 shape.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Summary

Last week’s big news was the Federal Reserve — they kept rates the same, and gave guidance on rate cuts that was just about in line with what was expected. Investors see a 70% chance of a rate cut at the Fed’s June meeting, with another expected at the September meeting. Ironically, at this point, I see rate cuts as a recessionary signal, though markets tend to rally on the news of potential rate cuts. In my view, the chances of the Fed engineering a soft landing are very very slim, and they may have already engineered the next recession (there is a recent article from Enterprising Investor on this topic that I recommend).

This week is a light data week, though we do get consumer confidence data tomorrow. There has been a serious disconnect between consumer confidence (which has remained relatively low) and consumer spending, which has remained high. Though people don’t feel good about the economy, they have money to spend and are willing to spend it — signs of weakness in consumer spending, however, could spell trouble for the US economy (of which 75% is consumer spending, though there is more nuance to this: see this week’s Chart of the Week). In all, I am still cautious (and I am getting tired of saying it week after week — I’m sure you’re tired of hearing it). Though markets are hitting all-time highs, the underlying economic fundamentals are not supporting it, leaving me concerned.

Chart of the Week

Excellent chart this week from Fathom Consulting showing the relationship between consumer confidence and equity markets. While there is some link, it is not a strong one. Consumer confidence is more closely tied with things like employment, as the second chart shows. When recessions are on the horizon, employment tends to falter and so does consumer confidence. This makes consumer confidence a very lagged and weak indicator for the stock market.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Summary

Inflation figures were the talk of the town last week. Headline inflation posting slightly higher than expected, but producer prices posted much higher than expected. This puts all eyes squarly on the Federal Reserve meeting this week, with investors hungry for guidance on the timing and path of interest rates this year. The expectation remains for rate cuts to begin in June, with about three total cuts for the year. Any commentary from the Fed that indicates less than that would likely be taken quite negatively by markets.

Retail sales were also disappointing last week. With the unemployment rate creeping up, I am re-emphasizing my (now long-held view) that there are some serious strucutral difficulties in the economy that need to be overcome. Seeing companies push profits higher would help me update this view (the majority of companies have not done this in over a year) . Or, if we see any of the other recessionary signals we have discussed here move in the other direction, my confidence in the path of the economy would grow. In sum, I am recommending caution — exactly what that means for you depends on your personal objectives.

Chart of the Week

The US Consumer has, for the most part, kept the US economy going. With manufacturing in contraction, services barely breaking even, and companies struggling to make profits, the consumer is the one bright spot. Retail sales, however, have been trending steadily down, to now at barely break-even. A contraction in retail sales would be an added concern for the health of the economy.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Details

Last week’s data was more of the same: durable goods orders came in well below expectations (orders shrank 6.1% in December), and consumer confidence also posted worse than expected. Personal Consumption Expenditures — which is the Fed’s preferred measure of inflation — posted exactly in-line with expectations, and markets rallied a bit after the news. This week we get data on employment: job openings, the unemployment rate, continuing jobless claims, and total consumer credit, as well as some insight into the health of the service economy. In Europe, we see data on retail sales and producer prices.

All-in-all, the data is still very mixed. Hype around AI has driven the market rally in recent weeks, and the SEC’s approval of several bitcoin ETFs has driven the price of bitcoin (and other crypto) much higher. So, we’ve seen a big rally in risky assets. Yet underlying economic fundamentals are still weak. That said, I have still not gotten the “recession is here” signals, so while I see a storm brewing on the horizon, it is not necessarily time to batten down the hatches and shorten sail. Of course, exactly how this outlook affects you and your investments is completely dependent on your situation — and we’d love to have a conversation with you to discuss it!

Chart of the Week

After trending downward post-Covid, underemployment has spent the last year trending back upward, moving from a low of 6.5% to now 7.2%. Underemployment (U-6) is much broader measure of labor force health as it includes people who have stopped looking for work but would still like to work, and people who work part time but who would like to work full time.

In short, this is a concerning trend — people pushed to the margins of the labor force are (1) not as economically productive and (2) not strong consumers.

More to Explore

Franklin Parker joined host Christopher Hensley on his podcast “Money Matters.” Come join the conversation where we discuss goals-based investing, the future of wealth management, how very wealthy families invest, and many more topics!

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Summary

Nvidia earnings took center stage last week and propelled US stocks to all-time highs. Almost all of the index’s return, however, is being driven by the top 10 stocks in the index — almost entirely big tech. Yield curves are still inverted, with investors being paid more to tie up cash for 3 months than for 10 years, and earnings have been largely flat for most US companies.

This week we see inflation data from a different angle with personal consumption expenditures, and data on global and US manufacturing, which is expected to post the 15th month in a row of contraction. Investors are also repricing the timing of Federal Reserve moves, with some beginning to expect a less aggressive rate-cut plan through the end of the year.

Recessions have taken hold in many places outside the US. The European Union is in a technical recession as is Japan, the United Kingdom, New Zealand, Canada, and Australia is teetering on the edge. My concern is that the rally in US stocks has not been led by positive economic fundamentals, but rather by a handful of companies and the optimism around artificial intelligence (some of which I believe is justified). I am, therefore, cautious.

Chart of the Week

After years of very strong decline, our “Is Life Getting Better” index has begun to tick up. The lowering of inflation and increasing of wages has seen this index level off and move higher in recent months. While not a direct economic variable, there is some overlap with markets as a whole — especially now that most economic growth is being driven by consumers. If this trend can continue, this could be an early sign that the economy is standing on firmer footing.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Summary

Last week we got a slew of data, and it wasn’t very good. Both the UK and Japan entered recessions in the last few months of 2023 (it does make one wonder about the health of this expansion, globally). We also saw inflation data, which posted hotter than expected — investors took that opportunity to take some profits. Earnings season is also almost done, and we’ve seen a mere 3% growth in profits over this time last year.

The big concern for me in last week’s data was retail sales, which posted lower than expected (and December’s figures were revised downward). Consumers have kept the US economy afloat, and if there is strain developing there I worry that it will spill into the larger economy. Additionally, over-leveraged commercial real estate is now an international problem. It is always hard to tell, but souring commercial real estate could well be a catalyst that saps investor confidence.

Overall, I am still cautious (admittedly, I am getting tired of saying that!). Higher share prices have not been driven by underlying economic fundamentals, and that makes me believe prices at this level are fragile. Prices can stay fragile for a while, but when they break they can break quickly.

Chart of the Week

After declining to historic lows, credit card delinquency rates have risen to above pre-pandemic levels, one of the signs that the US consumer is struggling to keep up. We are still well below the levels reached during the Great Financial Crisis (2008 – 2012), however, when delinquency rates reached 7%. Nonetheless, 3% delinquencies is approaching a high for the last decade.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Summary

This week is a fairly light data week, which is a releif after last week’s torrent. The Federal Reserve met last week and kept interest rates steady, with little guidance on when rate cuts might come (markets are betting on a May – June timeframe).

Earnings season continues, and it seems that Q4 of 2023 will be the 4th quarter out of 5 where companies make less money than they did the year before. While the headlines look good, the market rally over the last month or so has been mostly driven by the top 8 – 10 tech stocks while most other companies are struggling to grow.

Employment posted better than expected, and it continues to be the bright spot in the economy. In January, employers added 317,000 jobs, which is more than double the 155,000 that were expected.

My view, however, is that we are still in a pre-recessionary environment and that caution is warranted. All that said, your goals will always define how we manage this information in your portfolio.

Chart of the Week

Looking at the recent GDP figures for the last quarter of 2023, we can see that it is still the consumer that is keeping the US economy afloat. So long as people keep spending like they have been, it is likely that the economy will limp along. Seeing layoffs, however, and the unemployment rate rising (or the state of consumer credit — a datapoint we get this week), would likely be the last domino to fall before a recession (if we do indeed get one).

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.