So far, at the start of the 2nd quarter of 2022, it remains tough for Equity and Fixed Income markets with negative returns generally across the board.
Markets have been shaken by the combination of fears of faster than expected interest rate rises, increased levels of inflation and, of course, the tragic war in Ukraine. Equity markets regained some of their earlier losses during March, on progress in Russia-Ukraine talks but sadly no peace has materialised.
These challenges resulted in a rotation in equity markets, with a sell off in ‘growth’ to ‘value’ stocks. We also saw a shift geographically too, with outperformance of the resource and financials-heavy UK market leaving the US and ‘tech stock’ to lose value over the same period.
Meanwhile, bonds, traditionally a defensive and low risk asset class have seen prices fall with global bond yields experiencing the sharpest rise within a quarterly period in several decades.
The fall in equity and bond markets at the same time has led to very few hiding places for investors of all risk levels in 2022. Historically, markets have rebounded quickly from geopolitical shocks. Nevertheless, it’s clear we are not out of the woods yet and should brace for continued market volatility.
Central bank tightening in 2022 will continue to challenge markets as we see further interest rate hikes this year. The next key risk for markets now is a stalling in growth as a result of supply chain difficulties or elevated commodity prices triggering recession.
What should be done in response to these developments?
Firstly, we should not panic. To remind investors, we have seen falls across all asset classes before and seen values return to normal within relative short time periods (March 2020 when the 1st lockdown started is just one example). Whilst it is tempting to change an investment portfolio in a bid to take advantage of the latest news or try to avoid losses by moving to cash, it is very difficult to time these changes effectively. In practice, this could lead to little more than increased costs and acceptance of unnecessary short-term losses.
Instead, we recommend investors sit tight and allow the underlying fund managers to re-position their portfolios appropriately. Meanwhile, we shall continue to monitor their performance versus peers and ensure the outlook for the funds remains on track in the current markets but also looking to what’s ahead.
If you wish to discuss your portfolio with your adviser, please get in touch.