Summer is here and encouragingly, whilst the geopolitical risks remain, markets have been in a broadly positive mood across the world with inevitable bumps along the way.
Although the super seven tech stocks in the USA have been responsible for the majority of increasing market valuations, in particular, of growth portfolios in recent years, a more levelling out of performance across the board is welcome, particularly for globally diverse portfolios, such as yours.
In this regard, on reflection of the above I think relevant for discussion at our next meeting is the old adage that you ‘concentrate portfolios for growth and diversify them for capital protection’ whereas, in reality, we all want both and so I think it is important that we re-affirm with you what your priority is.
Across the world, the trajectory of Economic Growth has been variable so far this year with the US, Asia, Africa & India performing strongly, Japan & China well with the UK & Europe moving more slowly.
Inflation, in goods and services has likewise, diverged, creating a dilemma for central banks as to when and how much to cut interest rates resulting in variations in the timing. The cut on the 1st August here in the UK is a welcome sign of progress. Higher inflation has historically been associated with more short-term market volatility, which is something we will have to continue to accept.
This year, the many outcomes of the many Elections globally will have an impact which we will no doubt have to adjust for in due course. In the UK we now have a Labour government and in America, the race (an increasingly close one) is on to see what comes next.
In the meantime, the higher interest rate environment continues to allow 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 portfolios to invest in some quality assets at very attractive prices, which have fallen out of fashion/favour over the last two years, by going against the herd and taking a longer-term view.
Debt levels across the Economy, Government, Corporate & Individual remain at very high levels, with higher interest rates and some restraints on the availability of credit. Taking debt into account when drawing up portfolios, in our view, remains very important.
Geopolitical risk, meanwhile, remains a concern from an Economic perspective, whilst not taking lightly the humanitarian one.
My thoughts remain as always in that whichever direction the world moves, the key to protecting and hopefully growing your wealth is to take a longer-term view, which has always held true, by owning the highest quality assets we can for you, whether it is in Government debt or Equities, and be prepared to change strategy as markets indicate.
by Tim Wall, Investment Director