In my considerable experience, clients tend to refer to the status of the FTSE100 index as their barometer for portfolio performance, probably because it is so widely quoted on various media channels.
With that in mind, a common question I’m receiving now is, “Why is my portfolio falling when the FTSE100 is finally moving towards its all-time high from May 2018?” The answer to this is multi-faceted.
Equity performance globally has declined since the start of the year
The very first point to make is that the UK equity content of the average Investec Balanced-Medium risk portfolio is probably less than 30%, so it’s no surprise that your portfolio does not precisely follow the movements of this index.
The next biggest component of such a portfolio is the US equity part. Unfortunately, this more growth-orientated index has suffered in the short term because of a shift in market sentiment towards “income/value” stocks and away from “growth” stocks which have, in the previous few years, been in the vanguard of sharp market movements upwards.
For a sterling investor, the S&P500 Index has fallen just over 5% from the end of last year, whilst the more growth/technology orientated Nasdaq has fallen around twice that.
Looking further afield to Europe, Japan, and the Far East emerging markets, there is a similar pattern of falling indices with the EuroStoxx 50, Nikkei 225 and Hang Seng down 5.58%, 3.36% and 2.89% respectively in sterling terms (to 8 February 2022).
A better gauge, for equity performance at least, is the FT World Index, which incorporates all these major markets. This has declined 4.48% since the turn of 2022 (up to 8 February 2022).
Fixed interest investments have also fallen in value
Traditionally, during these spells of equity market weakness, one might rely on the so-called lower-risk, fixed interest part of portfolios for some stability. Unfortunately, whilst these are typically uncorrelated with equities, at this moment in time they are very much moving in the same direction.
The reason for this, principally, is that inflation is currently proving to be more durable than most commentators had predicted. As a result, central banks are moving interest rates up to try and stifle this.
One investment rule that does persist is that the price of fixed interest holdings will almost always fall when interest rates are rising (all else being equal), as their yields move in line with underlying rates. As the yield of a stock or fund rises, the price is falling.
As a proxy, the Government All Stock Index is, similarly, down 5.87% over this period.
Gold and Bitcoin are failing to break free of the downward trend
Gold is also usually well bid during more uncertain terms but, on this occasion, there has barely been a tick upwards in the same timeframe. Even hedge funds are struggling to capitalise on increased volatility this time around.
Bitcoin has attracted plenty of attention in the past few years and there were hopes that this would be uncorrelated to equity markets.
For this period, unfortunately, the price is down 4.47%; almost identical to the World Equity Index.
It is also some 35% away from its all-time high reached just in November 2021
Recalibrating your perspective on your portfolio performance
So, has anything else matched the FTSE100 rise of 2.47% this year?
Staying close to home, certainly not the FTSE250, which has fallen 7.21% with more of a growth bias. Nor the FTSE Small Cap, which is down 2.74%. This also impacts portfolio values as there will be exposure in the UK portion of portfolios.
Pockets of the commercial property sector have made gains but, of course, this was coming from a fairly low base after the Covid inflicted weakness of 2020-21.
In summary, the composite benchmark for an Investec Balanced-Medium portfolio, which is much more representative of the total portfolio, is down 2.33% year to date.
If you’d like more information on the topics discussed here or have any further questions related to your portfolio, your Investment Manager would be happy to help.
Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.