I present below some data comparing investment segments to which most investors would think about allocating a moderate slug of their diversified portfolios. The percentages are capital returns on the index with income re-invested (Source: MSCI)
Portfolios
Midweek Musings (late!) – using equity income funds in a downturn
I have written a couple of pieces to introduce this subject and I had promised to comment on some specific funds last week.
However, I thought that the possibility that there was a ‘bottom’ in the market at that time (an idea that is still holding good, but it is early days yet) was a more urgent idea for your attention a week ago, so the global dividend/equity income fund examples got deferred.
Smug Harry
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.
Watching Brief – April 2022
Pottering About
I note that in previous years I have adopted a ‘first quarter end’ review approach in writing April briefings. That still makes sense to me – we are now far enough into the year to get a feel for what will make 2022 different in economic terms and we can get an idea of what central banks are likely to do to try and manage economic growth and avoid a recession.
How good was my crystal ball?
I did some crystal ball gazing in January and identified a number of risks. Of the potential negatives, inflation and increasing geo-political tensions have turned out to be the two most significant headwinds, although increased US regulation is now coming through and we have not seen the back of Covid19 yet, especially in the Asia Pacific region.
One factor that I touted as a momentum positive, ESG investing, looks like being a little less of a useful guide short term than I predicted. As the war in Ukraine and the associated sanctions on Russian energy have pushed the oil price up, so have the price of energy company shares, which will not fit in the portfolios of investors whose ESG filters are focused on sustainable energy and fossil fuel free energy production. This is a subject I address in the second part of this blog.
Midweek Musings – it has come to pass?
I refer to the sharp sell off and loss of confidence in fixed income markets that I have been predicting for a long time would be the certain result of an eventual end to near zero interest rates, plus a realisation that if there is going to be inflation, one has to own ‘real’ assets, like global equities.
The latter asset class may suffer if central banks trigger recessions by misjudging the pace of rate rises, but at the moment, the relatively hawkish approach we are seeing suggests to markets that the top economists are confident in the strength of labour markets and consumer demand and see their priority as holding back inflation. Stagflation is no doubt a risk, but markets are not seeing things that way.
Midweek Musings – to buy or not to buy, that is the question
With the truly horrific Putin’s war continuing to destroy Ukraine and kill hundreds of civilians, soldiers on both sides and sending Russia’s world status back to the Stalin era, it is difficult to think objectively about matters of as little consequence as the value of electronic vouchers for money.
But obviously, we must.
The general state of global equity markets this week could be described as ‘stabilised’. Markets particpants in both the equity and fixed income markets are now able to make some judgements about the likely impact that Putin’s war will have on world order, although any such assessments will be assuming the war does not escalate outside Ukraine, either to NATO member counries like the Baltic states and Poland, or to other former Soviet Union outposts like Serbia and Moldova.
My personal asssessment of the economic consequences are that the reduction of food, energy and other primary goods coming to the market, plus the potential shock of a major Covid 19 outbreak in China (which will reduce suplies of manufactured goods) will together make the problem that triggered the end of the long bull market in November 2021, that being a fear of runaway inflation, that much worse.