As 2024 unfolds, I reflect on where we are and based on the presumption history always repeats itself, I ask after recent events, are we looking into a period like the 1920’s, 1970’s, or a repeat of the last few years? As each of these may require a somewhat different approach to your portfolio going forward.
The PE (the number of years earnings it takes to get your money back) of the now called super seven, the top tech stocks in America, is now over 50! They are responsible for a large element of the increasing share valuation of growth portfolios. Whilst most of their businesses continue to perform strongly. This could represent a repeat of the 1920’s, when it took a very long time after the events of 1929 for investors, who were over exposed to the equivalent assets at that time, to recover.
The possibility that growth may disappear with inflation remaining elevated and ongoing energy issues, commonly known as stagflation, looks like the 1970’s.
The view that interest rates will fall steadily this year alongside falling inflation with growth being sustained would be the perfect outcome . At the moment encouragingly America is successfully on this path. The rest of the world less so.
Whichever it is, higher inflation is historically associated with more short-term volatility in markets, which is something we will have to get used to, and relearn to live with.
Unfortunately, history tells us Governments tend to get this wrong, often due to other influences, such as Elections (the need to create a feel-good factor) which are fast approaching in the US, here in the UK, and in many other parts of the world.
In the meantime, the higher interest rate environment (more normal) enables us to invest for a better income, at lower risk, for funds we manage with an income objective. It has also created the opportunity in higher risk funds, to invest in some quality assets at very attractive prices, which have fallen out of fashion/favour over the last two years, going against the herd, and taking a longer-term view.
Debt levels across the Economy, Government, Corporate and Individual are at very high levels, with interest rates much higher and the availability of credit starting decline, taking this into account in drawing up portfolios is a very important factor.
Geopolitical risk, meanwhile, remains a serious concern from an Economic perspective, whilst not taking lightly the humanitarian one.
Taking all this into account, it is likely more changes to portfolios will be the norm for the immediate future , with a view to capturing the best opportunities that arise from all of this.
The final conclusion we come to will really be no surprise to those of you who know us well is that whichever of those scenarios is the outcome, the key to protecting and hopefully growing your wealth, is that which has always held true, and that is to take a longer-term view. Own the highest quality assets we can for you, whether it is in Government debt or Equities, and be prepared to change strategy as things emerge.