Timing the Market or Time in the Market 2022
Timing the Market or Time in the Market? The 2022 Editition
Following several years of generally positive portfolio performance across global markets, the first few weeks of 2022 have been significantly more challenging.
Global markets do not like uncertainty, as was demonstrated by the brutal sell off of March 2020 when the world locked down amidst spreading Covid fears. It was easy to see why the markets reacted as they did back in 2020, however it is less obvious why the US and other world markets have suffered a correction since trading opened on 4th January 2022 when markets had rallied towards the end of last year. This is more perplexing, as the general mood was that the collective “we” were coming to the end of the Covid pandemic and a new normal would emerge in 2022.
The reason markets are nervous is a fear over inflation being more than transient, the Russian/Ukraine border dispute and the overarching fear that new variants will emerge.
The multi asset funds that we use in the portfolios are actively managed and invest on a global basis. The equity (stockmarket) asset allocation of the funds tends to invest in proportion to the capitalisation of the developed world markets. As the US is the largest world market, the equity allocation is higher to US stock than other markets. Many of the largest global companies that drove the investments through the pandemic (Microsoft, Apple, Google etc) have been hardest hit and the S&P 500 and NASDAQ are down around 9% and 14.5% respectively since the beginning of January.
As an investor myself - and an Adviser - this volatility is both unwelcome and uncomfortable as valuations fall. However, corrections are not unusual and the nature of investing in equity means that volatility is an acceptable risk for longer term growth. The consensus view from the fund managers is that the medium-term horizon is positive as the world unlocks from the pandemic and we start to travel, supply chains normalise, and we all start to spend once more. However, with the current headwinds and uncertainty, volatility is likely to remain in the short term. As I write this on Wednesday evening (26th January) the volatility continues, although today the screens turned green showing a positive day’s trading after a tough few weeks.
Volatility and corrections provide fund managers with the ability to buy into quality companies at reduced prices. Although past performance is no guide to future performance, the adage of “its time in the market, rather than timing the market” has never been more apt. The fund managers are working hard to analyse both economic and market data so they can position their funds to ride out this short-term volatility.
If you’d like to discuss any issues raised, then please contact your Adviser at KDW on 01727 852299.
Marcus Maisey