Last quarter we noted that most stock markets, with the exception of Japan and the Far East, were growing. We suggested that although this could indicate the impact of Covid was over it would be premature to assume this was the case and that we should be ready for further reversals. This quarter we have indeed seen such reversals, with most markets either showing slow growth or even a decline. The exception to this rather negative picture is Japan, which has reversed the downward trend shown in the first two quarters.
The McKinsey Global Survey in September 2021 has indicated an overall positive outlook on the likely economic future in most countries except the Far East. This suggests the downturns we have seen in many sectors this quarter may be temporary. There seems to be good reason to feel positive about future prospects when looking at the medium to long term picture.
Property has continued the recovery noted last quarter.
Fixed interest has suffered during the quarter. This is not a particular surprise, and we suggested last quarter that the high debt levels we had seen meant it unlikely there would be any noticeable growth in the sector. As noted above, the increase in inflation has exacerbated this issue.
Typically bond prices fall, giving a higher yield, during high inflation, although earlier this year we saw the opposite, and have also seen other examples of this in previous years. This emphasizes how dangerous it is to try to predict the future financially. Nevertheless, it is sensible to be aware of the likelihood of a drop in the value of our fixed interest holdings should inflation continue to rise as expected.
During inflationary times corporate bonds tend to perform better than government bonds. Index-linked bonds, naturally, also perform better in inflationary times. If the markets expect inflation to continue to rise longer term, then short term bond funds should perform better than long term bond funds.
We should not reduce the amounts invested in the Fixed Interest sectors, both because we need to maintain the hedge they normally provide against equity downturns, and because it would be inappropriate to make kneejerk reactions to what are in reality normal cyclical movements. However, when reviewing the performance of our Fixed Interest funds we will look carefully at whether we are maintaining the appropriate balance in Corporate versus Government bond funds, short term and long term funds, and also whether we have sufficient inclusion of indexed funds.
We are at the final stages of agreeing our new bespoke Simple FP investment strategies being implemented across the Quilters Platform, this the first provider we have engaged with in terms of having access to the bespoke portfolio’s. These portfolios are only going to be appropriate for some clients and not all.
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