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Our aim is to keep our clients and investors informed of the latest developments in global financial markets and any potential impact on portfolios they hold.
The first part of this week has seen a markedly more upbeat tone in markets with a distinct glimmer of hope that the worst may now be over given improving data from Italy, Spain and New York. This has seen risk assets rally sharply although equities have struggled to hang on to their gains more recently.
There is much debate amongst market participants, economists and portfolio managers as to whether the recent market strength is the beginning of a new sustained upturn or a bear market rally. Only time will tell.
As my colleagues have rightly pointed out, attempting to “call” the bottom in markets is folly and we are resisting any temptation to try and do so. Some have looked back to the financial crisis of 2008 to try and draw comparisons but there are flaws in doing so. Primarily, no investor alive today has experienced a market like this. 2008 was a debt crisis whereas the experience today is of a self-inflicted recession which is likely to be severe. To be clear, the coronavirus has not caused the recession, the measures put in place to curb the spread of the disease has brought economic activity to a near stop.
As the chart below shows, whilst volatility (as measured here by the VIX) has fallen recently, it remains at the levels not seen since the depths of the financial crisis:
Readers of our previous communications will be familiar with our emphasis on professional portfolio construction and diversification. Given natural tendency to focus on equity markets, we would also like to highlight the following chart showing the changes in the UK government bond (Gilt) index versus those in the FTSE All Share:
This chart clearly demonstrates the extreme price movements we have seen in a, traditionally, lower volatility asset. However, the key takeaway from the chart is that Gilts rose in value in the early stages of the sell-off, providing valuable ballast to a well-diversified portfolio.
With apologies for sounding like a broken record, during periods of extreme uncertainty experience tells us that the best thing to do is often nothing. We have a tried and tested investment process with risk management at the heart of everything we do.
As Ascot Lloyds Investment Committee we always advocate portfolios that are well diversified across asset type, region, sector and style as part of our investment philosophy.
Next week sees some key economic data releases out of China which we, and the rest of the World, will be watching closely for any negative surprises. The consensus is for poor industrial output and retail sales but worse than expected data has the potential to exert renewed pressure on markets.
We will be back next week with another update and hope that you have found this one useful. As always, do not hesitate to contact your financial adviser with any questions.
In the meantime, stay well.
Our Financial Advisers are available on the phone so please contact us if you have any questions.
Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back any of the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rate changes may cause the value of overseas investments to rise or fall.
This article was issued by Capital Professional Limited, trading as Ascot Lloyd, Ground Floor Reading Bridge House, George Street, Reading, England, RG1 8LS. Capital Professional Limited is registered in England and Wales (number 07584487) and is authorised and regulated by the Financial Conduct Authority (FRN: 578614). This communication is for information purposes only. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. This communication should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the document. Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or companies within the same group as Ascot Lloyd as a result of using different assumptions and criteria.