Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

TWO years ago this coming week, investors were waking up to sharp falls on stock markets around the world. The cause was news of a surge in the number of coronavirus cases outside China. Even at this early stage of the Covid-19 crisis, markets were beginning to price in the risk of a sharp global economic slowdown if the virus spread.

As it turned out, they were right to do so. But the initial reaction across markets was severe. In the space of one month, the FTSE 100 Index fell by around 30%1. In the US, the situation was no better, with the S&P 500 Index losing 31% over the same time frame2.

Fast forward to today and stock markets as measured by the MSCI All Countries World Index have recovered all of those losses and then some3. The FTSE 100 has been knocking on the door of 7,600 this month, some 200 points above where it was this time two years ago4.

That’s without any help from the technology titans like Apple, Amazon, Facebook and Google that prospered in 2020-21 from our stay-at-home lives. Take them into account and the gains have been even more impressive. The US stock market as measured by the S&P 500 is now some 34% above where it was just before its big drop in 20205.

While much of the sharp rebound in world share prices over the past two years can be put down to America’s heavy weighting in the MSCI Index, gains have been widespread, including among emerging markets.

It’s not only stock markets that have taken a round trip. The world’s economies have rebounded too. At the start of the pandemic, the unemployment rate in the US was at a record low of 3.5%. It spiked to just shy of 15% in April 2020. Then last month, it was back at 4.0%. Following a rise of nearly half a million non-farm jobs this January alone, America’s employment recovery is nearly complete6.

But there is a further price to pay. Increasingly competitive markets for employers seeking workers, disrupted supply chains and a shift in the oil industry in favour of renewables have conspired to reawaken a sleeping giant.

Here in the UK, inflation has raced ahead to levels not seen since the Exchange Rate Mechanism crisis of 30 years ago. Food, energy and petrol prices have soared to the point where they pose a real threat to living standards.

Back in 1992, a run on the pound was driving inflation higher. This time, speculators are not to blame. Like most other countries, Britain is struggling in this post-pandemic world to place goods and workers just where they need to be to satisfy the release of pent-up demand from businesses and consumers.

If anything, the situation is more acute in the US. Our inflation rate of 5.5% last month was beaten significantly by the 7.6% annual rate recorded in America7.

Two years on and some supply chains are still under severe pressure. Last week Ford announced it would suspend or cut production at eight of its plants in North America owing to the continuing shortage of silicon chips. Models affected include the company’s iconic F-150 pickup, America’s best-selling vehicle8.

Interest rates – still at rock bottom just two months ago – are now set on an upward path and investors face a new set of challenges in terms of choosing what kinds of shares and funds to buy. The world really won’t be quite the same, at least, not in the foreseeable future.

So what have we learned? Perhaps we shouldn’t draw too many hard and fast conclusions about the best ways to invest based solely on the extraordinary events of the past two years. Had it not been for the unprecedented fast development and rollout of vaccines and the substantial payouts made by governments to furloughed workers, we and stock markets might not quite be where we are today.

Even so, a few investing principles would have helped over the past two years. First, staying invested even in the face of danger usually pays out in the end. The alternative – attempting to sell after the first dip then buying back in cheaper – can be a risky business.

In February 2020, nobody knew when or where the bottom would be or how rapidly markets would bounce back. Being out of the markets at any point from late March 2020 onwards had the potential to put a big hole in investment returns that might take years to undo.

Second, the journey we have travelled confirms that volatile markets favour regular savers. Committing a set amount to stock market investments each month means more shares or fund units automatically get bought when markets have fallen. Conversely, fewer shares or fund units are added to an investor’s portfolio after a rise.

These two effects act to bring down an investor’s average buying price over time. And they work best when there are plenty of opportunities to buy after a dip. The very sharp fall in the FTSE 100 in February 2020 took until the end of last year to reverse – or 22 monthly investments for regular savers.

Finally, diversification is an excellent means by which to ride the inevitable peaks and troughs of markets. The trick is to build a portfolio of assets that behave dissimilarly for a given set of market conditions. For example, owning an exposure to gold would definitely have helped in 2020; technology stocks in 2021; and energy companies so far in 2022.

Investors can build a portfolio that is diversified in terms of investment style and asset class by choosing funds from Fidelity’s Select 50 list. For example:

The Fidelity Global Special Situations Fund has a large exposure to US companies and some of the world’s largest technology names. Large fund positions currently include:  Alphabet (Google), Amazon, Apple and Microsoft.

On the other hand, the Artemis UK Select Fund is a fund that should benefit from a continuation of Britain’s recovery and an exposure to survivor companies from the pandemic now seeing less competition. Current large holdings include: the alternatives investment company 3i, Barclays and the research and manufacturing business Oxford Instruments.

Meanwhile, the Ninety One Global Gold Fund – formerly the Investec Global Gold Fund – invests in a diverse portfolio of gold mining companies worldwide and aims to produce capital growth over at least five years. It also has the flexibility to buy physical gold ETFs and shares in companies that mine for other precious metals, and currently has a 4.1% exposure to silver9.

All three funds feature among Tom Stevenson’s Fund Picks for 2022.

Five year performance

(%)
As at 17 Feb
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022

FTSE 100
3.9 3.4 7.5 -7.0 16.5

S&P 500
4.3 12.6 21.9 10.6 14.5

Past performance is not a reliable indicator of future returns

Source: FE, total returns in GBP as at 17.2.22

Source:
1 Bloomberg, 17.02.22
2 Bloomberg, 17.02.22
3 MSCI, 31.01.22
4 Bloomberg, 17.02.22
5 Bloomberg, 17.02.22
6 Bureau of Labor Statistics, 04.02.22
7 ONS, 16.02.22, and Bureau of Labor Statistics, 10.02.22
8 Reuters, 04.02.22
9 Ninety One, 31.12.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Tax treatment depends on individual circumstances and all tax rules may change in the future. Select 50 is not a personal recommendation to buy or sell a fund. The Fidelity Global Special Situations Fund, Ninety One Global Gold and Baillie Gifford Japanese Fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. The Fidelity Global Special Situations Fund also invests in emerging markets which can be more volatile than other more developed markets. The Fidelity Global Special Situations Fund and Artemis UK Select Fund use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The Ninety One Global Gold Fund invests in a relatively small number of companies, so may carry more risk than funds that are more diversified. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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