Whilst UK equities recovered during July and August, volatility remains and we still believe this could continue for some time yet.
With many pressures facing stock markets at present, from the Russian aggression in Ukraine, the geopolitical tension in Taiwan, global supply chain issues and soaring energy prices, it is no wonder economists and investment strategists seem to have consensus on economic prospects. With some forecasts of high double digit inflation facing us and fears of recession, it is uncomfortable reading from most angles. That being said, history has taught us to reflect and indeed challenge moments of strong consensus and so we are careful to keep our positioning balanced on portfolios. One area in which we agree on at JM Finn and which chimes with the author of this edition’s guest editorial (a journalist with 40 years’ experience) is that good companies generally remain good companies. By focusing on investing our clients’ assets in stocks with sound financials we ensure we are focused on what we know, not what we don’t.
This mantra is also shared by our contributing author to the collectives commentary on page 20. Running a fund with the explicit goal to achieve absolute returns, i.e. to produce positive returns whether markets rise or fall, has been particularly tricky throughout this year but a common theme has been to pivot towards those asset classes such as infrastructure, which should offer some inflation protection. There is no doubt we are having more conversations with clients about total return investment strategies and also, where appropriate, using capital to supplement income, for those investors who have historically relied on their investment income for day to day living expenses.
Another investment strategy that is explored in this edition, is pound cost averaging. Our wealth planning team often recommend this approach to investors looking to place new money into the market, or first time investors, and with the current economic situation giving us unsettled and more volatile markets, drip feeding money into the markets on a regular basis can be a sensible approach.
With a new prime minister in place, we will have to wait to see if this has any impact on short term economics. One area to watch will be the role the UK will look to play in Ukraine. Currently positioned as a world leader by overtly supporting Ukraine, defence spending will come under considerable scrutiny given the challenging economic conditions. This is explored further in the editorial on page 4, where investing in defence stocks is now viewed as a defence rather than offense investment, which helps surmount the growing headwinds to the sector from a social and governance perspective.
I hope you continue to find these publications of interest. We also publish a variety of market comment on our website and curate a collection of these that can be sent to you via email, for those who might want some commentary on a more regular basis. If you would be interested to receive this, please ask your investment manager to be added to the “Insights” mailing list.
Hugo Bedford CEO