The second quarter of 2020 saw the best performance in the equity markets since 1987, as the unprecedented decline seen in March was reabsorbed by the investment portfolios. US equities posted growth of 17.6% (in EUR) and Eurostoxx did slightly better with +17.9%. Emerging markets also benefited from the rebound with growth of 15.3%.
See how an example of Moneyfarm’s portfolios performed in this report from ARC.
Global macroeconomic data remains negative but, among the volatility, there are reasons to look to future with confidence. Markets are still pricing in a situation in which economic data gradually improves from now to the end of the year. Even factoring in the contraction seen in the first quarter, we see gradual growth as the most important focus.
The end of the last quarter does not negate the possibility of further corrections, but it at least helped us to understand the record-breaking movements of this year to date:
- First of all, the economic policy measures – bond purchases, interest rate cuts and job protection programs – were timely and effective and helped create the conditions for a recovery of risky assets such as equities.
- Low interest rates helped to quickly divert capital towards the markets. With accommodative economic policy, central banks have effectively urged investors to take more risk.
- The composition of the stock markets is biased towards sectors that have emerged as ‘winners’ from the crisis.
- Macroeconomic indicators have somewhat beaten expectations, resulting in a ‘better than expected’ scenario.
Advice to investors
So far, it appears to be the case that investors who came into the current crisis with well-defined long term plans and sound risk management measures have been rewarded. Having both allows you to:
- Limit losses in volatile moments;
- Avoid making complex decisions during uncertainty;
- Watch market movements with a degree of detachment;
- Take advantage of the eventual returns over the long term
A long term plan can help an investor stay on track and stay invested, even in times of extreme volatility – a decision that pays off for just about everyone over a long enough timescale. We recently compared the performance of two hypothetical investors, one who decided to stay invested from the beginning of the crisis and one who had decided to sell on the wave of volatility in an attempt to limit losses.
When you exit an investment you have two key bits of timing to get right. The first is the exact moment of exit and the second is the moment to start investing again.
Even in a situation as unprecedented as the first half of this year, staying invested in a diversified plan would have served to avoid the stress and risk inherent in making critical snap decisions about your financial future in times of volatility.
How we’ve reacted
Looking to the future and considering the factors we listed at the beginning, we can be reasonably confident that the worst of the financial turmoil is behind us. For this reason, we have adopted an attitude of cautious optimism, in line with our wider business outlook.
We recently took the opportunity to rebalance our portfolios, in line with our search for long-term, sustainable returns. We have taken steps to capitalise on the opportunities that the current volatility has offered up, without exposing our portfolios to any unnecessary risk.
If you’ve been looking for a way to grow your wealth over the long term, please don’t hesitate to get in touch with a member of our investment advisory team. They’ll be happy to talk you through your options and identify the risk portfolio that suits both your needs and your attitude.