24th February 2022 will be a day noted in history

Neil Birrell

Premier Miton's Chief Investment Officer

This update should not be taken as advice. If you are unsure about any of the content please contact your financial adviser. Please remember that the value of stock market investments will fluctuate and investors may not get back the original amount invested. To assist, where appropriate, a glossary explaining some of the terms used has been provided at the end of this update.

I started writing these update notes almost exactly 2 years ago. They were intended to provide an insight on our thoughts on economies, financial markets and how we were managing assets through the COVID pandemic. Events were moving so fast that we issued them weekly; as the situation became calmer it was more appropriate to do so on a monthly basis. The point of saying that is; during the early stages, it was necessary to caveat many of the comments with “at the time of writing” and that is very much the case with this update.

It is being drafted on the evening of 24th February 2022; the day that Russian armed forces moved into Ukraine. It was also the day the UK had COVID restrictions removed; ironic. I need to be careful in the language I use as it is a very sensitive issue and I will move onto the potential economic and financial market impact quickly.

I will also keep this brief as you will be living the story on every media channel and your email inbox will be full of wise advice; I have little of that, it is very difficult to offer that in times like this.

It was unclear before and is less so now

For some months we have been struggling with how rising inflation, central bank policy, slowing economic growth, the waning of COVID and its legacy would impact on financial markets. Just when we thought the outlook was getting clearer, something came along that muddied the waters.

But, to some extent, the changing influences were marginal. The big story was clear; inflation was rising, central bank policy was tightening and COVID was less of an issue. Different asset classes reacted as you would expect them to; bond markets fell, gold rose and within stock markets, companies that were more sensitive to economic recovery, typically, did better than those that were not.

However, overriding that was the fear that, in the medium term, the economic cycle would roll over and the prospects would be distinctly less rosy.

Simply, the outlook was uncertain.

The bear in the room

The potential for political and military action in Russia and Ukraine has been evident for some time. However, it was difficult to measure the potential economic and financial market risk. Some decisions were simple; avoid specific known risk and mitigate potential risk.

However, it is politics that we have been trying to monitor, understand and evaluate; the second two of those factors makes the whole process subjective. Therefore, other than specifics, for the most part, asset prices have been taking the situation into account and waiting for events to unfold.

Keep it simple

Normally at times of stress and uncertainty (which would include significant military conflict), the immediate reaction of market participants is one of “risk off”, which means buying safe haven assets and selling riskier ones. However, in this case the result of the conflict is likely to lead to higher energy and food prices and therefore higher inflation, which is bad for the “go to” safe haven asset class; government bonds.

Different asset class; different reaction

I will go back to where I started for a moment; events are moving very quickly and markets will react to that just as quickly.

It would be reasonable to expect that the gold price would do well in a stressed political, economic and market environment; it is a physical asset with a limited supply that can be physically held and traded. Not a bad asset to hold at a time like this, you would think.

However, the speech delivered by President Biden on the day of the Russian move was seen to be much less harsh in terms of the sanctions and action being taken against Russia than expected and the price of gold fell. Similarly, Russian energy exports escaped restrictions and the US President said he “would do everything in my power to limit the pain the American people are feeling at the gas pump”. Energy prices reacted accordingly; they fell, when you may have expected them to carry on up.

As I write this, it is possible to paint almost any picture you like on the outlook for economies and financial markets. The US stock markets have just closed, the NASDAQ 100 Index was up 3.35% on the day. Its biggest constituents are the giant technology and communications companies which did so well through the pandemic and then did badly as the world opened up again. Now they are suddenly back in favour for the perceived surety of their growth prospects, which never actually changed; how they were valued changed.

What have we done and what are we doing?

We constantly monitor the risks in the funds we manage. That is undertaken by the fund managers and also by the independent risk management team. We reviewed the exposures we had to Russia, Ukraine, associated countries and relevant industries and took action as necessary, selling specific positions. We have also looked at other associated potential geo-political risks and taken action, including selling Taiwanese companies. Managing investment funds means managing investment risk; that comes in many forms and we act upon those when required.

What next?

I don’t know. No one does. The short term is unclear, the medium term is uncertain and the long term has become less predictable. Asset prices are likely to remain volatile and we will actively manage our funds to meet their investment objectives.

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Risks

The value of investments may fluctuate which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. Reference to any particular stock or investment does not constitute a recommendation to buy or sell the stock / investment.

Past performance is not a reliable indicator of future returns.

Government and corporate bonds generally offer a fixed level of interest to investors, so their value can be affected by changes in interest rates. When central bank interest rates fall, investors may be prepared to pay more for bonds and bond prices tend to rise. If interest rates rise, bonds may be less valuable to investors and their prices can fall.

Future forecasts are not reliable indictors of future returns.

Glossary

Assets

Different groups of investments such as company shares, bonds, commodities or commercial property.

Bonds (or fixed income)

Types of investments that allow investors to loan money to governments and companies, usually in return for the offer of the pay-out of a regular fixed amount of money until the bond’s maturity date, plus the return of the original value of the bond at a set maturity date. The price of bonds will vary and the investment terms of bonds will also vary.

Volatility

A measure of the frequency and severity with which the price of an investment goes up and down.

IMPORTANT INFORMATION:

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the content of this document, please speak to a financial adviser. The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

Whilst every effort has been made to ensure the accuracy of the information in this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Reference to any particular stock or fund does not constitute a recommendation to buy or sell the stock or fund.  Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

For your protection, we may monitor and record calls for training and quality-assurance purposes.

Issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227.  Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

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This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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Disclaimer

This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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Disclaimer

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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