Investments and Mortgages in a Volatile Market
Posted by siteadmin on Wednesday 18th of March 2020.
18 March 2020 - Investments and Mortgages Update
As Independent Financial Advisers, we are committed to sharing relevant information and our professional, technical expertise regarding our clients investments. We appreciate these are uncertain times for us all, but we, along with our investment partners stay committed to providing the best advice available.
In this update we would like to update you on the following:
- How portfolios are reacting
- Mandatory investment drop notifications
- A message about Mortgages
- Our business continuity commitment to clients
We would like to reiterate our commitment to our clients and understand that some may be self-isolating for some time. Please do not hesitate to contact us to discuss any of your concerns or if you need or require assistance in any way.
How are Portfolios reacting?
In the last few weeks, market fears over the spread of Coronavirus have reached boiling point and we have seen the market responding to this. The FTSE 100 suffered its biggest one-day loss since 1987, exacerbated by President Trump banning all travel from mainland Europe to the United States and the perception that Central Bank intervention and government is insufficient. This has all put downward pressure on share prices.
As such, you will likely have seen the FTSE 100 and the S&P 500 receiving some of the highest attention in the media. These indices represent the majority of the largest publicly-listed companies in the UK and the US respectively. They are widely considered to be a barometer of investor sentiment in their respective countries and contain companies from a broad range of sectors. In global stock market terms, they have been two of the hardest hit.
But to keep this in perspective, just before reactions to the Coronavirus outbreak, global markets were at or near, all-time-highs.
We have regular conversations with expert teams of fund managers who work hard to ensure investment portfolios are well diversified. So despite these indices being hard-hit, portfolios are down by significantly less than the markets due to the globally diversified and multi-asset approach adopted.
The below chart demonstrates how the FTSE 100 Index has performed against a range of our various risk invested portfolios.
Investment portfolio performance vs the FTSE 100 Index
Source: FE Analytics. In the chart below:
A: Low Risk (3). B: Lowest Medium Risk (4). C: Low Medium Risk (5). D: The FTSE 100 Index
How portfolios are diversified
The below pie charts demonstrate how diversification is structured against various risk profiles. For example, the Lowest Medium Risk (4 out of 10) rated portfolio is composed of 40% equities with the remaining 60% composed of more defensive assets.
Mandatory investment 10% drop notifications
New industry regulations introduced by our regulator, the Financial Conduct Authority (FCA), at the start of 2018 and as a result of the Global Financial Crisis, require us to notify clients when portfolio value falls by 10% or more within a single, quarterly reporting period.
Despite the strong and positive growth in our portfolios between December 2019 and February, many portfolios have now dropped generating these notifications.
This type of sell-off is rare, with such a large fall occurring in such a small timeframe on a handful of occasions over the past 100 years. On each of these occasions, outlook for growth and global markets were far less clear and the long-term effects of the underlying cause meant Central Banks and governments had to provide stimulus to prop up their economies. This time around we are already seeing the stimulus and containment measures enacted, or will be in the coming weeks.
What is different this time is that we believe the ongoing impact to the economy over the longer term may not be as negative as the recent falls in equity markets have suggested. We believe that the large falls that have taken place are due to the unknown effects that such an epidemic may cause and are underpinned by not fully understanding how this may play out over time.
When investing, we look to the longer term and provide the guidance from industry experts and how they position the portfolios for investors. We only use providers whose focus is on constructing a thoroughly diversified portfolio, capable of outperforming its relevant benchmark over the medium to long term.
What happens next?
The Coronavirus outbreak will continue to dominate headlines for the foreseeable future. It is highly likely we will see further volatility across stock markets until a sustainable, significant slowdown in the number of cases can be evidenced across the world. There will also be the economic consequences to contend with which, at present, cannot be quantified or estimated.
The rate of new infections has thankfully been falling sharply in both Hubei province (the origin of initial infections) and in broader China. More normal business activity is starting to resume, but the number of people at work is still significantly below usual levels.
We are aware the Coronavirus has yet to peak and only a fraction of the eventual economic cost has been confirmed. Of course, it is tempting to immediately react to move money out of risk assets at the sight of increased volatility. But while this may appear to solve one problem in the short term, it also creates several others such as missing out on pockets of recovery across markets.
There are already indications that many financial institutions and seasoned investors are starting to put money back into the markets, seeing the reduction in global equity prices as an opportunity to buy in at a reduced level.
We are also seeing many of our clients looking to top up pensions and investments with the confidence markets will bounce back. The construction of almost all the portfolios we recommend to our clients are re-balancing and making changes to take advantage of the opportunities as events unfold.
We will keep business running as usual
In addition to providing market information we wanted to take this opportunity to reassure you that both Financial Advice Centre and our investment partners and platforms have sufficient and well tested contingency planning in place to ensure continued seamless business operations.
Financial Advice Centre has a comprehensive Business Continuity Plan, designed to protect the firm, our employees and clients to ensure our operations are uninterrupted through natural disaster, terrorist action or, in the case of Coronavirus, the potential for some or all of the team to operate remotely.
We are therefore well prepared in the event of an escalation in Government restrictions of movement because of Coronavirus and are fully confident that our day-to-day operations will continue to work as required.
We have tested and ensured that should the need arise - all staff can work from home without interruption to our business.
Please remember you can contact us directly or continue to call us on 01905 731 864 with any questions or concerns.
The Financial Advice Centre Team