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A stopped clock eventually tells the right time

Queen Victoria was the first English monarch to see her name given to the period of her reign, whilst still living. As many will know, the Victorian Age was characterised by rapid change and developments in nearly every sphere. From advances in medical, scientific and technological knowledge, through to political and social upheavals with the advent of socialism, liberalism and organised feminism. During the Victorian heyday, work and play expanded dramatically and Britain’s national railway network stimulated travel and leisure opportunities for all. So much so, that by the mid 1800s, visits to seaside resorts, horse races or a journey to see relations living in the countryside could be enjoyed by many of the then largely urban society. All very exciting for those involved – but what time to catch the train?

Before the railways, there was no particular reason why people in Bristol, for example, should keep the same time as people in London. At that time there was no practical way of relaying information about time over a distance. When the telegraph made such communication possible, it became necessary for people living in one area to agree they would not keep their own local time, but maintain a time based on a country-wide standard.

The railway companies sometimes faced concerted resistance from local people, particularly those in Bristol, who refused to adjust their clocks to bring them into line with what became known as ‘London Time’. All the new railways, which ran to or from London, decided to adopt Greenwich Mean Time (GMT) right across their systems. However, Bristol is 2º 35' west of Greenwich, so when it is noon in Bristol, it is just over ten minutes past midday in London. Frustrated Victorian passengers found themselves arriving in London on (Bristol) time, but too late for connections which had already departed on (GMT) time.

To assist travellers, two different times would be displayed; with the station clocks and train timetables displaying a different time, by several minutes, from that on other clocks in the town. Despite this early reluctance, railway time rapidly became adopted as the default time across the whole of Great Britain, although it took until 1880 for the government to legislate on the establishment of a single Standard Time and a single time zone for the country.

There is still a relic of this change; the clock in the picture below is located over the old Corn Exchange in Bristol and has two minute hands. The red minute hand is GMT and the black minute hand shows Bristol time!

Why reference to a stopped clock?

We have written about the concept of time on a number of occasions, particularly in the context of measuring investment performance (click here) and evaluating risk and return dynamics over the time horizon of an investor (click here). Regular readers will also know we – and many other commentators – have made reference, several times, to a number of cyclical risks building in the US economy; namely rising bond yields, rising policy rates, rising wage costs and rising inflation. As we publish this edition of VFTD, these risks are now front and centre for market participants. One could argue these concerns have arrived later than they should, but this ‘stopped clock’ of warning signals is, in our view, now showing the right time in terms of the where we are in the US economic cycle.

The near-term implication for prices, across public markets globally, has been a sharp reversal in the performance of risk assets. Crowded trades have suffered the most, particularly some of those in the equity income space which have, for so long, been supported by the artificially low yield environment.

Traditional income investors face a challenging period ahead, but opportunities are emerging and a number of our more macro-focused managers are profiting from this risk reversal. Concurrently, we continue to take enquiries from clients who are seeking yield but critically have time on their side. Freed from the need for liquidity, they are able to commit capital long-term; taking advantage of the illiquidity premium and cash flows offered by private debt.

Over recent years, there have been significant inflows into this asset class, as the investor base has broadened and the low interest rate environment has driven a reach for yield. Relative to private equity, which is currently considered expensive and awash with cash, private debt still offers selective value. However, caution is warranted, as a lot of money has been raised and we are significantly into the credit cycle. Manager selection is therefore particularly important and taking time to guide our advisory clients, through this process, is all part of our service.

Time stops for no man

138 years on from the statute of Standard Time, 2018 has taken time harmonisation – in the finance sector – to an entirely new level. Among major MiFID II innovations is the requirement that all exchanges and their members synchronise their clocks. Accuracy of one second is required for voice and other non-system trading and one millisecond for all other trading. Protests from Bristol are yet to emerge….

Julia Warrander and Russell Waite

Click here for printable version.