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Global Update Piece – Written 28 May 2020

Another week in the financial markets and hopes of a recovery have sparked a rise in the major market indices across the globe. Since our last website piece, the FAANG stocks have all reached new all-time highs (apart from Apple). The markets seem to be looking past the abyss of economic problems, in the assumption that the recovery is underway and that we are all going to be going back to normal. But how did we get here, and is this the right assumption currently?

We, at Greenfields, are currently incredibly concerned with movements in the current market. From a investment advice standpoint, the change undertaken in the majority of portfolios at the end of March was for capital preservation. But now, markets have recovered to be an average of 10% off the amount seen in mid-February, before the quickest bear market in history hit valuations. A key point is that most of the money that has been flooding the market since the end of March is retail money, rather than institutional – likely due to people staying at home, coupled with the emergence of zero-cost trading platforms. There’s a long-documented history of retail investors chasing stocks when they’re at their peaks, and then getting badly hurt.

This being said, have we got our current viewpoint wrong? Surely part of investing is riding these ups and downs, a mantra that has served Ian Maitland (our director) in good stead for over 30 years? All of the support provided by central banks (and in particular the FED with its historic intervention) means that markets can only ever increase from here no, as whatever happens industries are going to be bailed out? All of the above are obviously questions that we as a team are wrestling with on a daily basis. To put it bluntly, nobody has any answers currently; the myriad of assertions on what is going to happen next in the market are as wide ranging as the scientific guidance being given to the government!

The reality is that we are in the midst of the biggest economic event since the depression of the 1930’s, as the world deals with a demand and supply side shock. Therefore, we continue to take a defensive stance on this basis and will expect our investments to underperform whilst markets continue to look past this event. If and when we feel changes are needed to portfolios, we will write to clients with our proposed recommendations.

Written by Greenfields Financial Management Ltd.

This article is for information only and should not be treated as advice. No action should be taken in respect of this article without independent financial advice. This information represents the opinion of Greenfields Financial Management Ltd. only.

References – Article from Jupiter Asset Management, in particular Ivan Kralj’s piece titled ‘The price you pay does matter’ which can be found here: https://www.jupiteram.com/UK/en/Professional-Investors/Insights/Aimee-Truesdale/Active-Minds-27-May-2020?utm_source=StoneShot&utm_campaign=Active+Minds%3a+The+EU%27s+trillion-euro+green+tonic+for+economic+recovery&utm_medium=Email&memberurlid=2R41720636627P8728