Comment and opinion for retail investors in the UK
Not 007, but fixed income assets!
Readers will know that the return of inflation and the actions of central banks to sharply increase interest rates from a low base has had the entirely predictable (and indeed, this actually was predicted accurately by many, including your scribe) effect of trashing the value of longer dated fixed income assets like Gilts and Treasuries, which were valued on the weird assumption that interest rates were going to remain low or even negative for ever.
Last August my sub-heading for this introduction suggested some grounds for optimism with a final caveat (Reasons to be Cheerful 1,2 and 2.5). I fear I may be about to repeat myself in sentiment, although the context is very different.
Last year, I was finding reasons for hoping that a runaway bull market might hold up a little longer. This year I am going to suggest that we might have seen the end of a serious (and to be honest, long overdue) pull back to reality.
So what are this summer’s reasons to be cheerful and what ought investor’s to be worried about?
[Read more…] about Watching Brief – August 2022I write this in a very warm room, with outside temperatures around 30 degrees. Summer has arrived in Lithuania! Gardens are running away with growth after a wet Spring and the swimming lakes are busy at weekends.
Selling in May ahead of going away would not however have been sensible this year – a new cliché for selling in October would have been a useful guide!
In my experience, stock markets usually become listless in the months of July and August and barring new major global events that impact on economics and finance – which are more likely to be negative than positve anyway – it is very hard to take tactical decisions with any confidence.
In essence, I think of these months as a ‘do nothing’ period (apart from keeping a weather eye open). In fact, when building my client review calendar as an IFA, I scheduled hardly any meetings in these months, only partly because I myself wanted to take a holiday, of course, and I can never recall anyone objecting!
Clearly when markets have headed down for several months and the underlying conditions are not offering any obvious reasons to expect a return to a bull market, selling quality investments would only serve to supply bargains to others. This is one of those times when a shrewd investor lives on their reserved deposit funds or other income sources and leaves their portfolio well alone. But human psychology is not so easily managed……
As global stock markets head South again on gloomy news about inflation, stagflation, growth, shortages and so on, I am prompted to revisit my suggestion some time ago that this cyclical reversal might end up like the long and painful decline (up to 60% in some markets) that followed the bursting of the ‘dotcom’ bubble.
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)