Unfortunately, it would appear that diplomatic efforts to prevent conflict in the Ukraine have failed and whilst this morning’s news is worrying and unsettling for investors, it shouldn’t have come as a huge shock. Clearly, this will have an impact on portfolios and we are urgently seeking updates from the fund managers that we use. In the meantime, here is what we do know.
Thus far, the FTSE 100 is down around 2.7%, which is understandable and the US was down around 1.5% yesterday, but has been on a downward trend for most of 2022 unlike the UK which has fared well so far this year.
Our clients’ portfolios are long term investments and any immediate requirements should be held in cash deposits, so short term volatility shouldn’t cause any hardship. However, we also recognise that our clients will be concerned.
The majority of our portfolios invest less than 40% in equities and these are the asset class most affected. Other asset classes will benefit from market falls, such as bonds and commodities, (e.g. gold and oil). In addition to this the task we set our fund managers is to pick the right assets that will perform well over time and produce a well -diversified portfolio of investments that are designed to reduce market volatility and as such fall less than the market and, over time, produce consistent returns in line with our clients’ long term needs.
Inflation in the UK is currently running at circa 7.4% and interest rates on savings are running at less than 1%, so cash investment is a great risk to our clients’ buying power. Dividend yield on many of our portfolios is approaching 2% per annum and those portfolios also have the potential for capital growth unlike cash investments.
It is also worth noting that the current market volatility is nothing like that of March 2020 (beginning of lockdown). All of our clients remained invested then and have benefited as a result.
I have been in touch with some of our fund managers for their view and they want to watch the markets this morning before making a comment. However, history shows us that following the initial volatility over a conflict between nations, markets tend to stabilise and then perform well.