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Client Update - 7th October 2022

Over the year to date, it has felt at times like the headlines each and every day are filled with bad news and our trading screens are flashing red as markets struggle to understand where to go next. Be it a war in Europe, an energy crisis, high inflation, cost of living, rising interest rates or political ineptitude. I want to take this opportunity to provide some reassurance to our clients. We have been here before. Experience has taught us that recovery’s come when we least expect them. Patience is a rare commodity in financial markets, but it pays to try and look through the immediate news.

There have been many times over history when markets have run into trouble. However, history has also shown us that these periods are often short in duration and for the committed investor, these periods are more often than not followed by more favourable returns. Unfortunately, due to the behavioural phenomenon of loss aversion, people tend to remember the bad times twice as much as the good times. This means that despite a long-term uptrend in the markets, the volatility we have experienced in 2022 can cause investors to lose faith and rethink their investment strategy.

Our job is to keep investors on track, to assess the markets and make sensible decisions on your behalf. We are also here to answer any questions that you may have and guide you through the difficult times in markets. Part of our mandate is indeed to manage the downside as well as we can when markets are troubled, but it is of utmost important that the portfolios are ready to participate when the news flow improves and markets recover. They will.

Since 1926 to 2021, markets have more often finished the calendar year in positive rather than negative territory despite things looking gloomy at certain parts of the year – 73% of the time in fact. Whilst this is a statement of fact for the US S&P 500 Index, it holds true as an investment strategy. Stay calm and keep invested. Our investment team have been investing sensibly in the current markets, favouring defensive assets like gold and consumer staples – you will know the names – Hershey and Kelloggs to name a few, whilst taking the opportunity to start to build new positions in assets that are attractively valued. Consider the current market if you will as offering something of a January sale in some assets we have not held over the past year, that were the must have in 2020, but have since fallen out of favour. We all like a good sale and our team can pick these assets up today at less than half their value twelve months ago, thus building excellent longer term growth potential in the portfolios, but only if you remain invested.

Markets are often over-exuberant, and we can see that today. The favoured “stay at home stocks” of the COVID pandemic have been shunned. Whilst some were indeed overvalued as investors poured money into technology stocks as FOMO took hold – The Fear of Missing Out, many of these companies that are now under significant selling pressure still remain the companies of tomorrow and in a low growth world they will once again produce excellent returns to clients.

We do ideally need the central banks to start to change the rhetoric on raising interest rates, however timing the market is an impossible task. We saw just at the start of this week that a little bit of bad news (US new job offers were 1 million below the previous month) was interpreted by the market as good news, as it showed the US Federal Reserve that their higher interest rates were starting to cool demand, and therefore hopefully we are moving closer to the Fed stepping back from its rate rising policy. We cannot call when, but we know we are much closer to the end of the rate rising cycle than the start.

Ultimately the message once more is to stay calm and keep invested. Markets can be volatile by their nature, but this is why they offer excellent longer-term returns to investors who can accept this volatility. If you want to discuss this more, you know where to find us. Do have a good weekend and please do not worry about the investment markets, things will improve.

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