Stay in growth, holiday in value?
According to Kevin Murphy, co-manager of Schroder Income fund, there are two environments in which...
At 11pm on 31 January, the UK is set to leave the EU and the ‘transition period’ for Brexit begins. This is scheduled to last 11 months until 31 December 2020 – although much like every other Brexit-related date so far, it could be extended…until 2022.
Friday is also a big day for President Trump’s impeachment trial. Trump’s defense team still has time to finish making its case, and then senators can ask questions for up to 16 hours. After that, it’s up to the Senate to vote on whether to bring in witnesses. If they do, the trial continues. If they don’t, the Senate will vote and the impeachment process would conclude.
With such political uncertainty on both sides of ‘the pond’ it’s easy to be hesitant and sceptical – especially when it comes to the stock market.
While there’s no magic formula to know what stocks will do next and there can be any number of factors influencing their fortunes – good and bad – one thing we do know is that markets hate drama. When power shifts, policies can, too. If an impeachment ends in a new head of state, they may have a different stance on things like trade. And while Brexit will be ‘done’, everything from trade tariffs to freedom of movement is still to be thrashed out.
Both impeachment and Brexit could still be long and complicated, but if you’re investing for the long term – for example, retirement – remember: the stock market has always picked itself back up after every major fall in history.
‘Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.’
— Winston Churchill, UK Prime Minister from 1940-1945, 1951-1955
Of course, if you’re concerned about political uncertainty in the UK and US, you don’t need to put all your eggs in either one of the countries’ baskets so to speak – you could opt for a regional or global fund.
Often, we tend to have a home bias, but spreading your investments across different countries gives you both diversity and perhaps peace of mind. One such fund is Brown Advisory Global Leaders. The managers of this fund largely ignore wider macro-economic factors and focus on investing in ‘superior customer outcomes’ including household names such as Microsoft, Visa and Mastercard in their top ten*.
We caught up recently with James Thomson, manager of Rathbone Global Opportunities. He currently has 62%* invested in the US. We asked if he’s concerned about impending elections. “I would say even despite the politics, I like the US because that’s where we find some really innovative, differentiated, sustainable growth companies and really the US is where the growth is. US companies are growing profits four times faster than the rest of the developed world. Of course, it’s an election year so there could be additional volatility from that election…but overall I think investors over-emphasise the impact of politics on stock markets – at least in the long term.”
According to Guinness Global Equity Income managers Dr Ian Mortimer and Matthew Page, “Every year brings with it many unknown-unknowns and thus we seek to position the fund so that it is capable of weathering whichever direction the market takes. As ever, rather than trying to pick which way the macro or political winds will blow in the near term, we maintain our focus on companies that can deliver a sustainable, rising income stream alongside capital growth over the long term.”**
JOHCM Global Opportunities, which has historically been amongst the least volatile funds in the IA Global sector, is another option for long term investors. When it comes to monitoring volatility and uncertainty, manager Ben Leyland sums it up quite nicely; “It is more important to observe the scale of the bonfire being built, and act appropriately, than try to predict exactly when the match will be struck. Investors should continue to prepare for the worst and hope for the best.”***
*Source: Fund factsheet, 31 December 2019
**Source: Guinness Global Equity Income fund annual review 2019
***Source: JO Hambro 2020 Outlook