This week’s update is written by Laura Bird in our Bishop’s Stortford team.
Despite what seems to be an almost constant stream of doom and gloom news relating to markets, economies, inflation and interest rates etc, let’s try and pull out some of the more positive aspects buried within them.
In the words of the eponymous Warren Buffett, “Be fearful when others are greedy, and greedy when others are fearful.”
This maxim has unfortunately, (or fortunately depending on how you look at it) been the case over the past couple of weeks, with a sharp drop in global markets from mid-March amid a heightened sense of fear around. However, the wise words from Mr Buffett suggest the best opportunities to invest occur when it feels the most uncomfortable to do so.
Many observers may now be aware that the initial selloff was sparked in the US from the collapse of crypto bank, Signature Capital Corp, closely followed by Silicon Valley Bank (SVB), and together, these events heightened fears of a worldwide banking contagion and a consequent sell-off across banking stocks globally. Further validation then arrived in Europe, with Credit Suisse next in the line of fire, providing further fuel to the financial fire which continued to rage. Whilst rescue merger attempts, and/or lifelines, from central banks have helped to stem the crisis for now, the question remains as to whether this unexpected and unpredictable contagion can be contained.
So, which areas of the markets have bucked the trend and have continued to do well?
We advocate that it is sensible investment policy to hold not only a diversified portfolio, but also to not be too despondent and recognise that even in difficult market circumstances, opportunities will always present themselves, albeit slightly harder to find at times. So, despite the gloom, there have still been sectors within the market that have quietly continued to do well throughout this disarray.
Investors seem to have increasingly turned their attention towards the large capitalisation technology companies of late, the FAANGs (Facebook (now Meta), Amazon, Apple, Netflix and Google (now Alphabet)) and away from the smaller tech start up’s, in the hope they are better positioned and more resilient to withstand further economic downturns as well as benefit from a recent reversal in bond yields. Continuing strong cashflows within the larger tech players also ensure they will not be starved of capital in continuing their growth trajectories, unlike their smaller counterparts, a fear which sparked the almost overnight run-on deposits from SVB. With investors cautiously edging back into growth waters once again, Technology has also demonstrated its attraction, in being the best-performing sector year-to-date1.
Income funds have also rebounded strongly post-Covid2, providing a shelter in the storm of volatile markets with their resilience of dividend payments. Income itself, although not guaranteed, is felt more reliable than share price growth, particularly in challenging markets and where a regular income stream is attracting more investors to companies with sustainable dividend targets, especially during these inflationary times.
With the overall market outlook remaining uncertain for now and while it continues to blow hot and cold, we would expect the current high levels of volatility to persist unfortunately. However, we do remain comfortable with the diversified selection of funds within our portfolios currently and remain poised to make swift changes should this be necessary. The moral of this article is that opportunities will always be there; they just need to be found and be ready to invest when opportunity knocks.
We hope you have a good week.