Over the past month, we’ve seen two key trends confirm expectations we had at the beginning of 2021. At the halfway point in a year defined by recovery, now is a good time to take stock and assess both the first six months and what we might expect in the coming six.
Firstly, it’s been a positive month for equities. European equities slightly outperformed their US counterparts, while value stocks continued to outperform growth stocks. Valuations are still high, however, and there are question marks over the ability of value stocks to continue outperforming, but these are things for us to keep an eye on going forward.
Having said that, we remain confident that our faith in value stocks this year will continue to be rewarded. From a historical perspective, the price differential between value and growth stocks is substantial and this is something we expect to benefit from. In June, equity was the primary factor influencing both risk and returns in our portfolios and was a key reason that our portfolios performed positively over the course of the month.
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Secondly, we have to turn our attention to the situation around inflation. Higher than expected figures of inflation have caused concerns in some areas, but there are plenty who view the spike as transitory. One such group is the Fed, who seem to expect inflationary pressures to be short-lived, driven at least in part by things like production bottlenecks and fuels costs, the likes of which will likely be resolved before too long.
In situations like the one we’re in – one of radical monetary policy – the rhetoric coming from central banks is highly important. Bond valuations, for example, tend to dance to the tune of central banks during these periods, while the Fed is doing a good job of managing expectations and encouraging investors to look to the future and preparing them well in advance for any gradual changes in monetary policy.
For investors, the most important thing, as ever, is to have sound financial planning. To make that as easy as possible, our team is available to all customers – we can offer a detailed assessment of your financial situation and help you draw up a long-term investment strategy. You can book a call with one of our consultants here.