As we approach the end of the tax year for 2020, we are still experiencing the most extraordinary circumstances.
The IQ team is well and is now fully accustomed to working from home. We use videoconferencing facilities to hold regular team meetings and are keeping up-to-date with our clients from our various locations. This means that we can continue to manage your account and your money.
If you still have any ISA or pension payments to make – you have another 48 hours within which to do so – but please act today!
As a change this week, I have asked Nick Rolf – our Director of Private Clients – to put some of our clients’ most frequently-asked questions to Peter Lowman – our Chief Investment Officer.
Q1. Nick Rolf [Director and Head of Private Clients]
Did you make any changes to the portfolios at the height of the recent correction and what changes are you likely to consider going forward to take advantage of any noteworthy recovery when it comes?
Q1. Peter Lowman [Director and Chief Investment Officer]
Nick, to answer the first part of your question, we made no changes when the markets started to crash. These are unprecedented times and when stock markets move so aggressively in such a short space of time, the best thing to do is do nothing and keep calm.
And to answer the second part of your question, it’s imperative that any changes we make now be based on the shifting global economic backdrop that we are now dealing with. We are therefore considering reallocating further capital to areas such as healthcare, the digital economy, real assets and other areas of innovation.
Many of the markets and underlying assets have obviously become significantly cheaper over the last 20 trading days, so part of our internal investment processes have focused on identifying some of these new investment opportunities, with a view to taking advantage of them in due course.
The markets are likely to remain volatile and are not without risk, so sensible deployment of capital will be of paramount importance over the coming months.
Q2. Nick Rolf
Do you think now is a good time to invest more money?
Q2. Peter Lowman
Absolutely, the answer is nearly always yes, particularly when the global equity markets correct as violently as they have done over the past month. Reviewing your portfolio at this moment in time would obviously be sensible, as well as taking advantage of these falls and then adding carefully to our favoured positions.
Q3. Nick Rolf
I know your advice has always been to remain invested through market correction, but this situation just feels a little different and I am nervous about how much further markets could fall from here. Do you still advocate remaining invested?
Q3. Peter Lowman
When stock markets correct violently, emotions tend to run very high. So investment mistakes can be made in the blink of an eye. Every stock market crash feels different, and that’s because every event behind the crash is different.
What we can say with some confidence at this juncture is that over an average ten-year period, equities have outperformed cash 91% of the time. And that’s according to the Barclays Gilt Study that goes back to 1899. But there are still risks attached to the markets, and they could indeed fall again, testing their recent lows. It’s always best to remember that it’s “time in the markets that is the true secret of long-term success”.
Historically, bull markets have always lasted much longer than bear ones; we therefore advocate remaining invested – the most persistent investors tend to benefit so much more over the long term.
Q4. Nick Rolf
Would reducing the income I am taking from my portfolio each month help you to preserve my capital in the long run?
Q4. Peter Lowman
Answering questions about income requirements for clients is difficult at the current time. This is because bond yields are so low and expensive, cash deposit rates are near to zero, and there is a very real possibility of dividends on stocks and shares being cut or withdrawn.
So over the short term, if you are drawing income from your portfolio, consider only taking out what you need. If you are able to reduce or even suspend distributions over this current crisis period, then doing so might be a good idea – it will allow your capital to increase as the markets begin to recover.
Q5. Nick Rolf
Finally, Peter how do you think the markets will pan out over the rest of 2020?
Q5. Peter Lowman
The next six months are going to be very difficult. We are already in a global recession and the economic data and corporate earnings numbers over this quarter and the next are going to be awful.
But as we saw this week with the US unemployment numbers (which were truly dreadful), the markets actually went up. In fact, they have improved significantly over the last five trading days. Nonetheless, there are some tricky times ahead.
We might also see a “V” recovery in the second half of the year as the global workforce slowly goes back to work, manufacturing picks up, and the economic data and corporate earnings numbers begin to recover.
This is why we think that the current pull-back in the markets has created an interesting buying opportunity for investors with long-term time horizons and the appropriate risk appetite.
Thank you for your continued support throughout these difficult times. The IQ team is on hand to answer all your questions. Please let us know if you need to set up a call or a virtual meeting with any of our advisers while we are all subject to the current confinement measures.
If you have a specific question, please fill in the box below or reply to this email. We will find a way to respond to you in the coming week.
Most importantly, keep well and stay safe… wherever you are.