Market jitters create investment opportunities

Global economic growth continues to tick along at reasonable, but not spectacular, rates and central bankers across the major economies remain dovish.

It has been an exciting six months for global markets. The year began with all eyes on China and now the world is glaring back at us in the UK. Throughout the six months there have been two primary themes driving positive stock market performance: firstly, a welcome rally in commodity prices and, secondly, ever stronger demand for assets which are perceived to be lower risk, such as gold and government bonds.

To put this second point in context, the average annual return on UK gilts over the last 50 years has been 2.9% (adjusting for inflation) compared to the last 12 months where ten year gilts have returned 11% and 30 years gilts have returned 23%. At the time of writing, yields on long dated gilts are hitting fresh record lows – investors seem happy to accept minimal returns for extended periods of time, so long as their assets are invested in what are seen as safe havens.

London-listed equities have performed much better than scaremongering media headlines would have us believe, with the FTSE 100 making steady progress throughout 2016. Smaller and more UK-centric companies have been under pressure since the EU referendum as investors have looked to reduce exposure to areas such as London property and the UK high street. It is understandable that investors are wary of the UK economy but it is also worth remembering that we are not currently in a recession and that we should now be through the point of greatest uncertainty.

There are plenty of headline-grabbing events ahead, with new leadership in the UK and in the US later in the year and potentially in Europe too before long. Volatility has spiked twice in 2016 already and tends to do so around such elections but it must be remembered that volatility presents opportunity for investors.  For the funds that I manage I will continue to focus on owning shares in high quality businesses that can generate secure and growing dividends for shareholders. If market jitters result in share prices detaching from the value of such businesses, that is where particularly lucrative investment opportunities arise.

Fred Mahon is the fund manager of JM Finn’s Coleman Street Investments service. Click here for more information.

Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.

Related articles

What is the outlook for 2023? Brian Tora takes a look at the current economic climate.

After a tough 2022 for investors, investment director Charles Bathurst-Norman, suggests that while the short term outlook remains gloomy, it is worth remembering that markets tend to rebound quickly.

After a challenging year, James Godrich reports stronger performance in the fourth quarter, both on a relative and an absolute basis, in the CSI funds.