General Market Overview
On the 23rd of September, the newly appointed Chancellor of the Exchequer Kwasi Kwarteng announced a revitalised 2022 growth plan through an interim mini-budget. Amongst other changes, the salient points covered in the mini-budget were to reduce the basic rate tax to 19p, reverse in the recently adjusted increase in the dividend rates and national insurance hikes last April and increase the thresholds for Stamp Duty Land Tax. Despite the backtrack to the abolition of the additional rate tax of 45%, markets evidently still have a lack of confidence that these cuts haven’t been fully accounted for with further borrowing to fund such expansionary policies. The purpose of these amendments, albeit a risky and aggressive approach to combat the current economic climate, is to encourage spending within the economy in a bid to stimulate growth. The Bank of England has launched an intervention to prevent ‘Material Risk’ to the UK financial health through the temporary purchase of UK Gilts in an attempt to fortify the economy. Currently, the chancellor has announced that he will not be resigning and although some of the tax cuts have been watered down it clearly shows the impact of policy error. As such, the market sentiment has been somewhat negative against other major exchange rates and market indices such as the FTSE 100 which has proved to be relatively resilient this year.
Our Strategic Views
We are aware that the mini-budget will have a huge economic consequence and subsequently impact all our investment strategies. However, reminiscent of the previous market reaction to worldwide events such as Covid and the Russian invasion of Ukraine, highly volatile periods, like we are seeing now, is simply an instant reaction to economic impacts. The chart illustrates the exchange rate between the Sterling and the Dollar. As you can see, there have been multiple instances where the Sterling has become weaker in relation to the Dollar, notably when Covid took its toll in early 2020. We at Strategic Solutions are comfortable and confident that this is just another bump in the road and that we are happy with where all our On-Panel investment strategies are situated. It is our experience that there is a UK home bias tendency when evaluating the effect of political events. It is important to remember that the ‘value’ nature of the UK sector only plays a small role in your portfolio, which contains investments over many markets to retain diversification. Since the majority of portfolios are exposed to the US, the Dollar’s recent strength has effectively protected our portfolios against the weakened exchange rate. We are aware and appreciate that there seem to be more daunting world events in the last few years, but we endeavour to remind you that it is all about time in the market and building a strong portfolio as opposed to timing the market.
Past performance is not a reliable indicator of future returns. The value of investments and the income from them can go down as well as up, so your clients may not get back what they invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of an investment in overseas markets. Investments in small and emerging markets can also be more volatile than in other more developed markets.
Our Position
Whilst we appreciate negative news and a fall in values are unsettling, it is important to focus on the long-term view of investing. As you are aware, prices rise and fall over time due to various unbeknownst inflationary and deflationary pressures. As such, when investing in the struggle against global high inflation, it is essential to hold a well-diversified portfolio to protect investments from unpredictable economic conditions.
After the unusual event of 2020, we saw financial markets go through an extreme volatility period as a result of the global pandemic. By the end of 2020 through 2021, there has been a strong recovery throughout global markets. During periods of market volatility and paper losses, it is important to understand the level of risk that you are taking and that this continues to meet your objectives and correct risk mandates/profiles. It is a reminder to our clients that investing is over the longer term.
Short-term volatility often occurs in investment portfolios, whilst it can be worrying, it is important that you understand that markets historically will return.
General Market and Strategic Investments Strategies
| Performances figures – September 2022
Using ‘Balanced’ / Risk 3 out of 5 as an example |
||
| Date ranges | 01/01/2020 – 31/12/2021 | 01/01/2022 – 30/09/2022 |
| FTSE 100 | 4.76% | -3.66% |
| S&P 500 (In sterling returns) | 50.91% | -7.95% |
| Casterbridge Hardy 5 | 11.80% | -8.67% |
| L&G Multi-Index 5 | 15.92% | -11.15% |
| LGT WM Balanced | 18.34% | -12.72% |
| HSBC Global Strategy Balanced | 21.38% | -11.01% |
| Vanguard LifeStrategy 60% | 18.55% | -13.27% |
| CT Universal Map Balanced | 19.43% | -11.33% |
| Brewin Dolphin MPS Balanced | 18.24% | -12.34% |
| Premier Miton – Diversified Balanced Growth | 22.24% | -10.89% |
The first dated column shows the resounding performance of each investment strategy and index from the start of 2020 through to the end of 2021. Despite the market crash caused by Covid in the early months of 2020, every investment strategy recovered and made a positive return. The second dated column shows the current performance of our strategies throughout the current year until the end of September, inclusive of the mini-budget effects. As you can see, whilst this year has netted a negative return, we invite you to look at the bigger picture and recognise that time in the market is essential, as indicated earlier. We will continue to monitor each investment strategy to ensure that it meets your requirements. However, if throughout your investment journey, you have felt uncomfortable with the fluctuations you may have seen, please contact your adviser as soon as possible.
