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.
You could be forgiven – depending on your home market – for believing that the past few months were either a mere blip in the upward progress of stocks or the dawning of a new world where investment returns will be much harder to come by.
That reflects a wide variation in the performances of markets and sectors since coronavirus lockdowns began in March. At the time of writing – and even after a difficult week for shares – America’s S&P 500 Index is trading close to its previous best, while the FTSE 100 remains about a fifth lower than at the start of this year1.
The world’s largest market is the clear source of some global skew. Thanks to their strong past performances, just five stocks now account for around one fifth of the S&P 500 – an index once considered a broad reflection of American life2.
With the pandemic has come an increased demand globally for stay-at-home stocks like Alphabet (Google), Apple, Amazon and Facebook. So while the human cost of the pandemic may have been greatest in the US, the country’s stock market has actually proven one of the most resilient.
Two of the world’s largest suppliers of consumer products to the world’s supermarkets and drug stores – Johnson & Johnson and Procter & Gamble – also now feature among the S&P 500’s largest constituents.
Away from America, the investment experience has generally been more prosaic, although markets first hit by the pandemic have tended to recover more quickly. The value of a diversified approach to emerging markets investing has been brought into sharp relief by the disparate performances of China and Brazil, where markets are up about 14% and down 9% respectively so far this year3. Please note past performance is not a reliable indicator of future returns.
Back in the UK, investment returns have been under pressure from a variety of sources including Brexit uncertainty, a big hit from dividend cuts and suspensions and the poor performances of the oil majors and stocks dependent on discretionary consumer spending.
Overall, we’ve seen a quite rational move in favour of technology, healthcare and consumer defensives, while sectors that have borne the brunt of lockdowns – discretionary consumer, oil & gas and industrials have been bringing up the rear.
The trends we’ve mentioned here have certainly been reflected in the relative performances of funds this year. Casting an eye over Fidelity’s Select 50 list reveals the Rathbone Global Opportunities Fund – with its high concentration exposure to the US and tech stocks in particular (e.g. Amazon, PayPal, NVIDIA) – has served investors well so far this year.
Similar could be said for the JPM US Select Fund, another relatively concentrated portfolio of around 58 holdings featuring positions in America’s largest tech names and market weighting (about 15%) in healthcare.
China’s strong rebound has been a boon for Asia focused funds on the list, including Merian Asia Pacific with its large investments in the internet giants Alibaba and Tencent.
Then there’s gold, which supporters say is benefitting from a near perfect storm of paper money printing, a highly uncertain economic outlook and the prospect of higher inflation once the current crop of increased government spending begins flowing through the global economy. With the yellow metal posting new records around US$2,000 this month, some gold mining funds have shot ahead⁴. The one gold fund among Fidelity’s Select 50 – Ninety One Global Gold – has certainly generated a strong performance in this environment.
Unsurprisingly, the two UK equity income funds on the Select 50 list – Franklin UK Equity Income and JOHCM UK Equity Income – have struggled, suffering from a combination of value bias – a style that has yet to show strongly overall – and dividend cuts across a variety of sectors. The Fidelity Global Dividend Fund and Invesco Global Equity Income Fund have fared considerably better and continue to offer income investors significant diversification opportunities away from the UK.
So what are investors to make of all this? One thing we can say is that it has paid to be diversified. The investment portfolio of a UK investor too heavily committed to UK companies is likely to have underperformed over the recent past, whereas one with a more international flavour is likely to have done better.
Second, actively managed funds will have had a distinct advantage, being able to take positions in beneficiaries of the lockdown. Those funds with the flexibility to invest in bonds and other assets like gold may also have been able to capitalise on what, for them, have been manageable market conditions.
Markets this week demonstrated once again that bouts of volatility can occur at any time. While backward-looking economic data and company results may have been the triggers this time for a return of investor caution, it’s still the case no-one really knows how far the current medical crisis has yet to run. Unsurprisingly then, and despite the recent reopening of economies, opinions on the outlook vary, from a period of stagnation to post-pandemic boom.
In uncertain times such as these and beyond, multi-asset funds like the Fidelity Select 50 Balanced Fund can stand investors in good stead. With exposures to equities, bonds and cash, together with a wide geographic spread, these funds aim to give investors a smoother ride through difficult times. The Select 50 Balanced Fund is built predominantly from funds on the Select 50 list but a small percentage of other funds are featured too.
More on the Fidelity Select 50 Balanced Fund
1,3 Bloomberg, 31.07.20
2 Investopedia, 13.07.20
4 Kitco.com, 31.07.20
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. Investments in emerging markets can be more volatile than other more developed markets. 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. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Select 50 is not a personal recommendation to buy or sell a fund. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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