In the UK there is a risk that investors become consumed by the political and economic newsflow which in turn leads to irrational decision making. At Tacit we have always remained cognisant of the political and economic outlook as it frames the longer term competitiveness of economies and in turn the companies that we invest in. Having said this, we have also always stated that attempting to forecast the outcome of an election or the economic outlook in the short term has been proven to be a losing investment strategy for most investors over a very long time period.

Understanding the economic trajectory of a country and its relative real economic growth rate over the coming decade is important. Comparing this to the same information for other countries is vital as countries and companies compete for capital and capital follows real growth rather than nominal. This competition may get blurred in the short term however over longer periods that relationship between real cashflows and growth and the price of an asset linked to this has held strong.

It is for this reason that our investment approach at times such as now focusses more on the earnings and cashflows generated by the underlying companies held in our strategies rather than the latest headline grabbing comment on social media. This is important as it is the growth in these cashflows in real terms that will lead to higher prices for the assets held in our client portfolios. We cannot forecast when this will be but the disconnect between a growing company and its falling share price will correct when we least expect it. The ability of companies to grow cashflows remains the key to investing for investors in our view and market movements driven by daily news flow will add volatility but not erode the intrinsic long term value of a company that focuses on growing its cashflows through difficult times such as these.

To illustrate this point through a live example helps. One of the major holdings in our strategies for the past year has been the Guinness Global Equity Income fund. This fund invests in a basket of 35 companies listed all around the world which the managers believe provide good cashflows today and will continue to grow these cashflows through economic cycles, be they inflationary or deflationary. 23 out of the 35 companies that have reported this year have increased their dividend by 8.5% on average. Their share prices have fallen due to the concerns about inflation and rising interest rates.

In reality, a growing cash flow is as important in a 2% inflation world as it is in a 10% inflation world. If a company grows its cashflows at 8.5% per annum whilst inflation averages 5%, its shares are more valuable today (not less) and over time investors will realise this. Patience is vital during periods such as now and patience has historically been rewarded with solid real returns from equities.