Time to change the record

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.

The topics I have covered in this update note have not been very varied over the last two or three years. They can probably be covered by; COVID, recession, recovery, collapsing markets, rising markets, inflation, interest rates and Ukraine. All of which had different impacts at different times.

Therefore, this month, I will try to change the record and keep it short! However, all tunes need an intro and I’m afraid there has been quite a lot going on in the macroeconomic world to briefly comment on first.

Inflation, recession, recession, inflation… what’s the problem?

Investors are struggling to decide whether to worry more about inflation or recession; in the last month or so, the balance has swung firmly in favour of recession. We have seen most asset classes reflect it: the price of commodities including gold, metals, oil and agriculture have all fallen, bond markets have been volatile and moved in a way suggesting recession is imminent, and whilst stock markets have been performing satisfactorily of late, fears of recession are prevalent.

It was interesting to see the European Central Bank put up interest rates by 0.5%, double what was expected, frontloading their monetary tightening stance to take on the spectre of inflation. Although, arguably, they have arrived late to the party, they are fully joining in. Bond markets took the news well, picking up on the fact that the peak in the interest rate cycle may arrive sooner than was previously expected. If the Bank of England, US Federal Reserve and other central banks keep the trajectory of rate rises going, that may follow through in other regions. So, whilst recession is looming, there is light at the end of the tunnel.

However, there are many, many headwinds for the economy and markets to contend with and it is difficult to suggest that the short term is anything other than problematic and there may well be more downside. Nevertheless, there is plenty to be optimistic about in the long term.

Let’s flip the record on to the B side and look at a different topic for a change.

Currency movements can be more important than you think

When markets are being driven by macroeconomic events, as they are at present, these are often reflected in currency markets quickly and significantly. All the economic data points such as growth, inflation or employment, and any hint of policy moves from central banks, are being scrutinised instantly, sometimes causing big currency moves.

Most portfolios have currency risk to one degree or another, ranging from the base currency of an investment to the look through revenues and profits of a company held, the latter of which is a big influence on the FTSE 100 Index. Currency risk can quickly become one of the biggest risks in a portfolio when markets are moving and this is complicated by the fact that you have to consider the pairs you have exposure to sterling/euro, sterling/dollar etc. All exchange rates are influenced by both sides of the pair. Like all risks in a portfolio you need to know what you’ve got and want it or mitigate it.

Currency risk is a key one in international portfolios, but major currencies can be hedged (an investment which aims to mitigate the effect of adverse price movements in an asset or group of assets) cheaply and easily should you choose to do so. It is also a risk in single country portfolios for any or all asset classes.

Across all the funds we manage, we consider the currency risk. This may mean analysis of the level of international sales for a UK company, or the currency an asset is quoted in. Either way it makes a difference to investment returns and so is not one to ignore, particularly when currencies are so volatile.

And onto another new(ish) topic – the UK.

Does the UK really matter?
On a global scale, the UK is relatively insignificant when it comes to the size of economy or financial markets. However, it does play a key role in providing access to capital for companies from all around the world. The financial services industry in the UK is world leading and attracts the biggest and best participating companies from all over the world to London, in particular.

Clearly, the UK’s global political and social impact is greater than its economic one and that makes the country a world leader and a point of interest, if not focus for the rest or the world.

However, we do get quite wrapped up in ourselves and as a result, typically have a domestic bias to our portfolios. That can be a good and a bad thing, it is important to be aware of it, that’s all. It is the same for most nations and we are in the good position of having a vibrant, regulated and outward looking financial services industry.

Does the political turmoil at the top of the UK government really have an impact on markets?

In the first instance; no, but it’s hard to see it as a positive. Investors will only start reacting in a concerted way when, and if, there is any likelihood of a change of regime or economic policy. We won’t know that for a while and given it will still be the same political party in power, there is unlikely to be much change.

However, investors from around the world will see this as being destabilising. It leads to greater uncertainty at a time when the economy is under pressure. Investors in UK bond and stock markets may look elsewhere and if you were the Chief Executive of a company looking to expand into the UK through an acquisition or organically, you may well decide to wait and see who the next Prime Minister is.

The last word

I’ve kept this shorter than normal; good.

This year has been hard work, it’s been hard to make money and easy to lose it. However, across the range of the funds we manage, we remain focused on achieving their investment objectives and managing the risks in doing so.

How would you rate the information in this article?

Click on a star to rate it.

We are sorry that this post was not useful for you.

Write your comments here:

Tell us how we can improve this post?

Risks

All types of investment carry a degree of risk.  It is possible you could lose some, or all, of the money you invest. The level of risk varies depending on the type of investment.

Reference to any particular investment or asset class does not constitute a recommendation to buy or sell the investment or asset class.

Where investments in a fund are denominated in currencies other than sterling (for example, if a fund holds assets priced in euros), its value will be affected by changes in the relevant exchange rate. Certain other investments, such as the shares in companies with profits from other countries, will also be effected.

Future forecasts are not reliable indictors of future returns.

Glossary

Asset class

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

Bonds (or fixed income)

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

Capital

Describes financial assets, particularly cash, or other assets, such as shares, owned by a person or organisation.

Commodities

These are natural resources such as gold, oil, gas, metals or agricultural products that have practical uses and can be bought and sold on financial markets.

Macroeconomic

The overall economy of a country or region. Macroeconomic factors include; inflation, interest rates, unemployment and gross domestic product, amongst many others. These are used to describe the health of an economy and will effect financial markets.

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. 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.

007194/280722

Stay up to date

Sign up to receive the latest articles straight to your inbox

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.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >

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.

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 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.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >

The content you are trying to access is intended for investment professionals only.

Please use the button below to return to the hompage.

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.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >

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.

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 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.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >