Comment and opinion for retail investors in the UK
For some time, maybe over a year now, I have been telling anyone interested that owning fixed income funds was not going to be defensive in the near term. The classical non-correlation with equities was not going to work.
This was important to owners of the passive multi-asset funds that ONLY use fixed income assets in a set mix as volatility controls. The Vanguard LifeStrategy funds would be a good example.
It is a maxim of the investment business that a long upward trend in equity market valuations will not truly end until the market has ‘capitulated’.
This could be taken as meaning that a sell-off has reached its lowest point, but that is not something one can ever know until a recovery is clearly well set in. So we need another explanation.
A couple of years ago, I wrote a page for the web site that objectively compared the merits of active vs passive investing and the use of mulri-asset funds. If you did not see that article, here is a link.
There is actually plenty of other content dealing with the use of passive funds, multi-asset offerings and ETFs all across the web site. I recommend reading more if this is a mystery to you. The search function will help you find article and blog posts.
Towards the end of the highlighted article, I commented on the relative past performance of 4 potential purchases: a Vanguard Lifestrategy Multi-Asset Passive fund, a vintage and well thought of global investment trust, a more active managed low ciost multi-asset fund from 7IM and a ‘normal’ actively managed global equity fund with a bias towards dividends.
The then record showed that the investment trust was far and away the best performer based on recent results.
As usual when starting this monthly commentary, I looked back to see what I wrote a year ago and in fact it was absolutely relevant on this occasion. I was prognosticating the potential impact of central banks raising interest rates to tame inflation. I took the general line that such actions might not be that effective based on prevailing conditions but that if the central bankers decided that the way to make rate rises more effective in slowing inflation was to ramp up rate rises, then they might crash the global growth completely.
I just read a piece by ‘Dr Doom’ , Nouriel Roubini, more or less saying that stagflation (inflation and no growth) was now a dead cert. He was able to add some extra negatives that I did not know about a year ago: the Russian invasion of Ukraine and the very aggressive lockdowns in China as the government there tries to keep the country free of a major outbreak of coronavirus.
