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 Friday we shall find out more about how consumers are responding to rising food and energy bills, as the Office for National Statistics publishes its retail sales data for February. For many people, the soaring costs of essentials will already be disrupting their discretionary spending.
Set against that is the anticipated further release of pent-up demand, as the effects of the pandemic fade. Unrestricted travel and the full return of social and sporting events could drive some consumers to throw caution to the wind after two years of gloom.
How these two trends play out against one another will set the scene for the UK economy in 2022 and, possibly, beyond. As such, they are crucial to the investment backdrop.
In January, pent-up demand was in control, with DIY purchases and fuel sales (by volume as well as price) helping to drive a 1.9% increase in overall sales compared with December1.
However, the cost of living crisis bubbling up is probably as severe as many of us can remember. It prompted Money Saving Expert Martin Lewis to say last week that he is “out of tools” to help people save money2.
So could the UK economy – which is more than two-thirds driven by consumer spending – now be on the road to ruin?
Well, the pressure is surely mounting. The oil price is back at $115 per barrel today, amid uncertainty about how the world might make up for lost supplies from Russia3.
Meanwhile, the Bank of England’s Bank Rate was raised to 0.75% last week and the expectation is that rates could now rise to 2.0% by the end of this year4.
Higher interest rates tend to depress consumption by making loans more expensive and less attainable; and via the negative wealth effect caused by a stalled or falling housing market.
UK economic growth projections for 2022 from, for example, the Bank of England, IHS Markit and Consensus Economics – have been on the slide since the start of the year and they could fall further.
Even so, the good news is forecasts are still pointing to growth of about 4% this year on average, which is a mile away from the conditions that might create two consecutive quarters of negative economic growth5.
Still, it could make sense to have a slightly more defensive strategy in place when it comes to investing in the current environment. This could mean, for example, holding more in companies that are resilient to a downturn, such as consumer staples and pharmaceuticals.
The Liontrust UK Growth Fund, which features on the Fidelity Select 50, has large positions in the pharmaceutical giants AstraZeneca and GlaxoSmithKline, both of which have benefitted from a switch in focus towards defensive growth names.
A well-balanced portfolio is also important. But perhaps even more so in uncertain times. The Fidelity Select 50 Balanced Fund is a ‘one-stop shop’ that provides a ready-made, globally-diversified portfolio.
Fidelity investment director, Maike Currie, recently caught up with the fund’s manager, Ayesha Akbar, to discuss how the fund works and what its investors can expect.
1 ONS, 18.02.22
2 iNews, 20.03.22
3 Bloomberg, 22.03.22
4 Bank of England, 17.03.22
5 IHS Markit, 22.02.22
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. The Fidelity Select 50 Balanced Fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. 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. Currency hedging is used to substantially reduce the risk of losses from unfavourable exchange rate movements on holdings in currencies that differ from the dealing currency. Hedging also has the effect of limiting the potential for currency gains to be made. The Fidelity Select 50 Balanced fund investment policy means it invests mainly in units in collective investment schemes. There are just a few fixed limits for the three core elements in the fund. These are 30% to 70% for shares, 20% to 60% for bonds and 0% to 20% for cash. Select 50 is not a personal recommendation to buy or sell a fund. Tax treatment depends on individual circumstances and all tax rules may change in the future. 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. 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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