We’ve put some of your most frequently asked questions to the team at our sister company Asset Intelligence Portfolio Management
What if central banks raise interest rates too far and too fast – or too slowly and not enough?
This is arguably the key question preoccupying markets at the moment. To try and protect against these risks, the portfolios hold equity funds with clear and well-defined exposure to each of the competing ‘growth’ and ‘value’ investment styles.
High-quality ‘growth’ companies tend to do better during periods of low economic growth – which could result if rates are raised too quickly. Meanwhile, cheaper ‘value’ stocks tend to perform relatively more strongly during periods of high inflation – which could persist if rates are raised too slowly.
Thus current portfolio positioning provides some cover against possible policy mistakes in either direction.
What if there is further fallout from Russia’s invasion of Ukraine?
Given all the remaining uncertainties resulting from this tragedy, the investment manager has ensured that the portfolios remain diversified across a range of different regions, investment factors and industry sectors. Further, the modest cash holding within the VT Asset Intelligence Growth Fund – a significant position within the portfolios – has recently been increased to provide greater potential protection from any such tail risk.
What if supply chains continue to face disruption?
Interruptions to the supply of a wide range of goods have been commonplace ever since the pandemic. In no small part, this is because factories and ports in some countries have entered snap lockdowns when COVID cases have been detected. Elsewhere, the war in Ukraine has damaged trade in goods including agricultural products and semiconductors. These stoppages and disconnections have worked to raise prices.
We have therefore ensured that the portfolios contain exposure to funds focusing on ‘value’ companies – see the first answer – but also to those which put the emphasis on companies with brands strong enough to achieve ‘pricing power’. This refers to an ability to pass higher costs onto customers and so protect profits.
Given the performance of markets so far this year, why should I remain invested?
The capital markets can undoubtedly be volatile at times. However, decades and decades of historical performance show that they have an excellent track record of delivering growth over the long-term.
Pulling substantial sums out of the markets and holding cash brings with it a number of risks. The most obvious of these is inflation. This is a serious long-term threat to the real value of cash when inflation is close to the Bank of England’s 2% target – let alone when it is above 9% as is the case at the moment.
Further, historical data shows that the longer money is invested in the markets – without interruption – the better the chance of a positive outcome at the end of the investment term.
Indeed, research shows that had one invested in the US market between 1980 and early 2021, but missed out on the five best days – and only those five days – the overall return would have been an astonishing 38% lower than it would have been had the money been fully invested throughout. (Source: Fidelity)
If you have any question, please get in touch with your adviser or give us a call on 0116 269 6311
Past performance is not a reliable indicator of future performance.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
All information correct at time of writing.