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.
This week we’ll publish the latest edition of Fidelity Personal Investing’s quarterly Investment Outlook, and once again we’re looking for the questions that you want answers to.
You have until midnight today - Monday 12 October - to submit your questions to the Outlook’s author, Tom Stevenson, who will present his latest thinking on markets and asset classes via a webcast and a podcast that will go live later this week. Tom will also be answering your questions, which have now become central to our coverage of the Outlook and provide an invaluable insight into what is on investors’ minds.
Here’s a few themes I expect to feature prominently this week. What would be your question to Tom?
When will value funds begin to recover?
If you invest via actively managed funds - those which are run by a fund manager with the aim of beating a benchmark - you may have noticed a split in the funds you’re looking at. Those investing with a ‘value’ agenda have tended to struggle against those funds which instead focus on ‘growth’.
‘Value’ investing has a grand history with some of the best-known, and historically best-performing, funds following that approach. It leads the investor to those companies which look cheap by historical standards, with the logic being that the market will at some point recognise the value of these businesses, leading to them being in greater demand in the future. The problem is that value investors are being made to wait a very long time for this recognition to come about.
Meanwhile, it is those funds concentrating on growth - which means the companies able to produce reliably growing profits - which have continued to outperform even when valuations on strong growth companies have risen to historically very high levels.
The trend has been accelerated this year as economies have locked down and the growth which many value companies need is pushed back even further.
Can prices for ‘value’ sectors of the market begin to recover? Many fund investors will hope the recovery happens soon.
Where can you get income from shares?
Dividends were put under immediate pressure when the Covid-19 pandemic struck. Even those companies which did not yet know the full impact of lockdown on their trading saw it as necessary to cut dividends as a prudent step to retain cash ahead of a difficult period for the economy. Others, of course, had little choice in the matter.
But the pain of dividend cuts was not spread equally across different world stock markets. The latest Global Dividend Index from Janus Henderson, from August, confirmed an overall 22% decline in dividends paid in the second quarter of the year, but with Europe and the UK the most affected regions. Many others, including North America saw only very small reductions.
That chimes with analysis of one popular income fund, Fidelity Global Dividend, which features on our Select 50 list of favourite funds. According to it, by July this year the fund, which looks globally for dividend income, had only seen a 5% reduction in income from the companies it invests in - although that obviously can change as time goes on.
It suggests, however, that income for global equity income investors, while likely to be reduced, may not suffer as badly as the headlines on UK dividends might suggest.
Is it too late to buy gold?
For those of us who have been sceptical of the benefits of holding gold in our portfolios (guilty), it was painful to see the metal surge in the first half of the year as investors fled stock markets. Gold performed its role as currency of last resort with aplomb.
It has fallen a little from the highs of this year but remains elevated. Is it too expensive to buy now?
Those looking to build a position in gold might consider doing so over a prolonged period by drip feeding money. That way the buying cost will be averaged out to reduce the chance that bad timing leads to a loss.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. 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 an authorised financial adviser.