INVESTMENT MARKET OVERVIEW
What we know and what we don’t know!
What we know
We know that Investment Markets are forward thinking and price assets based upon what is currently seen and expected.
We also ‘know’ that interest rates will remain on the floor, with Government financial support in the form of monetary and fiscal stimulus likely to be required for the foreseeable future in order to nurse the economy back to health.
We must always remember that the Investment Markets are not the economy – so more economists are now suggesting that the lows of March are not likely to be further tested, although there are sectors that will collapse and others that will require ‘life support’ for a long time to come. Personally, I expect further bouts of volatility as data or crisis news changes, but long term investors should be agile and take the long term view as opportunity unfolds.
Selecting quality assets, within a broad and balanced asset allocation, is therefore essential and it is clear that BPFS have been successful in this respect.
We know that investors are searching for quality stocks that are future proof, such as the Tech and Healthcare sector, as no return is available from cash
Economists are quoting previous Stock Market recovery time lines – where the investment markets are quick to hit lows, with the economy following in a couple or 3 months later. If one thing is certain, there is no absolute certainty in relation to the time line of recovery at this point.
What we don’t know
Well, the outcome of the markets are always impossible to predict (as you will know) so it’s futile to try to make predictions. (I often get asked to make the craziest of guesses – which I do my best to politely resist!).
So, we don’t know if the recovery is going to be V, U or W or even √ shaped …. (but it is clear that a global recession is upon us – I’d say a technical recession is already clear!) – I guess this should be in the ‘What we know’ section!
The outcome for economic, health and investment market recovery will depend upon the success and compliance with the medical experts’ direction, leading to the ultimate global solution; a vaccine, so we hope that one of the companies held in our ‘Biotech’ sector finds the solution for a multiple of reasons.
Long term investing pays off, where many informed investors have entered the investment markets close to the recent lows, with a mindset on the long term, rather than the present.
I have explained in previous communication that it is essential for investors to behave like they have invested in a long term contract.
Structured Product/Deposit investors adopt this mindset very well, which I accept is a challenge to investors without a level of contract barrier protection – but nevertheless there is a mindset improvement to make. (The counterparty exposure issue is not relevant to holdings in ‘long only’ funds so a balance of ‘risks’ is always needed – to produce suitable outcomes).
A Comforting Investment Fact
The performance of our risk models relative to comparable benchmarks and peers have delivered extremely well (actually better than any other comparable risk adjusted range of portfolios we have seen).
We have been able to compare many recently and it has been sad (actually concerning) to see how loosely and opaque some investments are constructed.
It is often only in times of crisis that we identify the quality from the poor!
We will be very busy moving forward for sure, given our deep understanding about what we advise as suitable to our investment and pension clients, using best of breed investments on an independent advice and unbiased basis.
We are not relaxing here – we are testing our views and seeking to advise our clients of action required as it develops. (We would again state, if you are a long-term investor, with capital to deploy, get in touch so a suitable solution can be constructed).
We ‘know’and are sure
That supply and demand imbalances will take their toll on the wider economy for some time to come, leading to an often volatile investment market.
‘Looking through’ this murkiness is often difficult – but clear thinking will help ….
Sectors that ‘Etail’ will do massively better than retail, naturally.
Question Ask yourself how you are planning to adjust to the future ‘new normal’; will you return to the High Street quickly?
Healthcare and Tech are the future and certainly the present, which is why we have held exposure to the sectors, regardless of tough market cycles. This was not ‘crystal ball’ reading – simply informed logical positioning.
If you consider your personal spending/consumption patterns, you will arrive at the rationale as to why Amazon has delivered strongly, both in supply terms and Stock Market position. Pharma and Tech are favoured sectors by most quality managers and it’s easy to see why.
I listened to a retail analyst speak earlier where it was suggested that fashion stock could be discounted to 80/90% – so watch this space! We can expect to see T K Max online and other Etailers offering big discounts soon.
We also know…….. without Government intervention the financial markets would be in a place that is unimaginable, with the economy in a similar unsupported position.
Good practice – a great financial plan
The Good Budgetary and Capital Reserves practice that we preach to all clients has hopefully placed our clients in as good a position as is possible/requred. Moving forward, we will be restating the need for continuity of shorter term access to capital/income as we must consider such a crisis could develop again.
Stopping unit sales (encashments/surrenders) where investment markets are plunging is a no brainer. We know that every person has their own personal needs and views but trust our regular communication and recommendations have helped to this point.
We’re guessing ………. that lockdown will move to some sort of softer return to business activity – which is why investment markets have moved forward in what seems like a disconnected way, with Wall Street and the Square Mile. With the support of Governments the long term outlook for investing is expected to be strong, if only for the interest rate environment.
We’re searching for …… quality Income focused products and will highlight products to investors when they become available.
We see that dividends have been ravaged – some decimated – so, together with interest rates on the floor, there will be a search for yield replacement, and I see some of this being replaced by coupon …. Watch this space and don’t miss out when plans become available.
As always, if you require advice, get in touch. We’re here to help.
Stay safe and healthy.
Richard, Sian and BestPrice FS Team
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